how to use panels on custome front page
The correct way to set a page using Panels (I'm assuming Panels 3) in Drupal would be to go to the Panels interface and click "Add custom page". You can give that page any path you want such as /home - the path doesn't actually matter. Then, from the admin options: Administer -> Site Configuration -> Site information you can change your default front page. Input the path that you used when creating your new panel.

This will give you a new custom panels page that will show up as the default front page at www.yoursite.com

This video will walk you through the process step by step.