Hello All,
Sooooo, I went about re-assembling everything back tonight. Loosened the motor and re-alinged it with the pulleys and made sure it was in a comfortable position for the belt, as per a lot of your recommendations. Took the bush out of the oil can and fitted it to the casting – it moved longitudinally very easily but did not rotate so, for its purpose it stays in place pretty well. Plenty of oil and I moved it so the drill hole was a half cresent on the oil hole so it could wick also. Fitted the countershaft pulley and belt etc (was a bit of a pig when the bush could move along with it but managed it in the end).
Ran the lathe at top speed for approx 10-15 mins and the housing was warm. I am pretty happy as before it was getting hot quickly rather than reaching a medium temp and staying there. 
I have a feeling running the countershaft without the pulley and belt to the spindle in the equation may have been giving misleading results as it wouldn't have had a counterforce on the opposite side of the bush to balance it, just a thought.
Dennis – I know it is definately the bush that was the source of the heat. I will look out for any tell tale signs you said in points 1 and 2.
Thank you for everybody's input and discussion. All very valuable and I have definately learnt a thing or two.
(Regarding the dodgy clutch cam, after re-assembling the follower in the correct orientation it seems to be behaving itself, if not a bit wobbly when not engaged. Thanks to everyone who answered on that too, when I first started this hobby about 3 years ago I was told you can ask ten different model engineers the same question and you will get ten different answers and all tof them will be correct, this is definately true here,
)
Thomas