Ok as an update - I went through the process again doing a re-format as well and it all worked fine
Now that Irex are starting to close their web site down we really need to get a system image that is version 2.12 - I would imagine that you wont be able to update to that version online any more. Its quite an important update because it has the DRM mobipocket reader on it.
Anyone know if there is a version 2.12 file system image out there somewhere?