First class support
After posting our issue and creating a small test site (2 pages) to reproduce the error, then giving ftp access I was contacted by Ray today by telephone to debug. 30 minutes later fixed - brilliant support.
framework.php file was the problem on our 1&1 server in the UK. It checked for the existing of a file and created an error even though the folder and file exisited. This only occured in the absolute root of the live server, ie. the entry point of the domain. Servers are pretty much vanilla 1&1 dedicated servers (centos5) with Plesk 10.
Ray added a few lines of code to specify the directory before checking and everything is working fine. I'll let Webassist tech give the details to avoid me misleading anyone, but if anyone has the same issue there is a workaround or fix.
A big thank you to Ray for first class support. Contacted and fixed in 24 hours, support don't get any better than that!