Ha! I've managed it. Random mucking around got it to work in the end:
I uninstalled MSReader. I then ran ReaderKeyRecoveryTool.exe which predicatably said it couldn't find MSReader.exe.
So I reinstalled MSReader and then ran ReaderKeyRecoveryTool.exe - this time it went a bit differently and fired up MSReader - wahay! - told me to open a DRM file - wahay! - and promptly crashed with a warning about Data Execution Protection - boo!
Having had some experience with DEP, I know that is designed to prevent one program messing with another, which I guess is exactly what this is doing, so I disabled DEP for MSReader.exe and ran ReaderKeyRecoveryTool.exe again...
Back to the old errors. Arghh!
I then decided to repeat the process. Uninstalled MS Reader. Reinstalled. Ran ReaderKeyRecoveryTool.exe and...
SUCCESS!
It would appear that you need to run the tool without ever running MSReader first after a reinstall. And disable DEP. And don't have another hook.dll lying around
Phew. Off to Fictionwise now!