I'm not laughing, the diagram is fine for what you want and it should work if wired correctly. I think your assumptions on wire colors are probably correct, although it shouldn't matter if you had it backwards, it should still work OK, but it might be a bit more noisy.
If only one pickup is working, check the connection from the other one to the switch.
I don't know what to make of your statement that it sounded like 2 tone controls. Turning down the Volume on most guitars cuts some high end as well, so in that sense, yes, it is like having 2 tone controls. But you are undoubtedly as used to that effect as all guitarists are, so it sounds like this was an extraordinary effect, maybe something unique going on here.
If that's in fact what you're hearing, a treble bleed mod will help.
Ok so the diagram is the right one. I failed to mention that I did not put a bridge ground wire in yet - now you may laugh!
I thought the ground bridge wire just to cut a lot of unwanted single coil noise so I was not going to install until I had shielded the bridge cavity (after I've finished the finishing stage). But I guess I've got that wrong.
Your problem with the "two tone controls" could be thus:
If the connection between the volume pot for the Neck Pickup and Ground is dodgy (as marked in red), then both the Volume and Tone controls act as a strange tone control combining resistances and capacitance in series with the output.
Your volume lug is missing a connection to the ground of the circuit. The lug that isn't being used on the control: bend it back and solder it to the back of the pot.
Your tone control was working fine and as intended, but your volume control was just putting a variable resistance in series with your output.
I won't bother you with what little I know of the electronic theory, but suffice to say, putting resistance in series with anything kills treble, so it sounded like your volume control was being a tone.
You've been attempting to link to images, but instead you've been linking to whole pages, as if they were the image. Can't do that, sorry to say.
Instead, use the direct link to the image itself - here's how:
While looking at the Photobucket page with your image, hover over said image, right-click it, and select Properties. Left-click the cursor over the text to the right of "Location:" - that's the real URL for the image. You've now highlighted the text of that URL, so copy that with Control-C.
Now come back to The NutzHouse, write your post, and paste in your link with Control-V. Surround that with the Image tags ([img] and [/img]), and do a Preview (Alt-P). Whala!
Finish your text, and hit Alt-S to post it! ;D
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