I have figured this one out now thought id post the result:
On setup of the virtual host the datastore was working fine however next day and forevermore i had the described problem. Once i figured that the problem occured overnight i turned off VDR action on the host vm and now i can create vms on my virtual host no problem.
I can snapshot the host vm though but vdr backup kills it.
Anyway hope this helps someone else.
Cheers,
Matt