Thanks for the prompt reply!
Preferences does not have iCloud though, only MobileMe, does that mean I cannot sync iCal on my mac as it is sync'd to my iphone and works no problem?
I have tried changing email address to @icloud.com (as this works sending and receiving emails) but makes not difference.
In iCal the option to sync is greyed out, but gives an option to sign into MobileMe. It also says to turn on synchronization in MobileMe preferences although there is no option to do this?