What I want to be able to do is:
1. Set up sites for multiple clients - the sites need to be accessible through their domain names i.e. www.mysite.blah.
2. Give them FTP access to update their sites
4. Allow them to change their passwords
5. Web stats
Thats the purpose of ISPConfig.
You seem to setup everything correct except you did not check the "Administrator" checkbox for the user that shall have access to the website root and you mixed up the customer login and the user login.
I cannot log on to the ISPConfig control panel as web1_user, but, I assume if I installed the web mail software I'd be able to log in there as web1_user and change the password from there?
This is the mailuser login, from the manual:
I can log on to ISPConfig as Customer1 and use webftp (logging in again as web1_user) to update the main web site.
I cannot use an FTP client to log in as Customer1.
The client username and password is only for login to the controlpanel.
This is all described in the user manual, part 2.2.1 step 4.