Ok, my long standing misery has been resolved by Apple. I must admit, this has been fixed now since April 5th and I've only just remembered to update this post....
In short, my email address is registered under another AppleID, the very same one that I already checked but it didn't show.... And here's the gotcha...
If I sign in to appleid.apple.com to manage my mobile me account, there is no mention of my personal domain email address anywhere in here... However, it is this very account that has my personal domain email address registered with it as discovered by the iTunes senior support assistants response from their DB management escalation team.
They advised me that if I log into my mobileme account at www.me.com and then choose "account" from the small drop down menu in the top right hand corner below your username. Once in this part, choose the personal info tab on the left. In here is a box containing an "alternate email address" which is quoted as being used to retrieve forgotten passwords etc. This is the source of the duplicate!
I changed this to my non monitored hotmail account and hey presto, I could change my usual AppleID account back to my personal domain and verify the email address without problem. This then allowed me to sign into facetime.
So, it seems that this field in the mobileme personal info panel is not duplicate checked against existing AppleID's yet everywhere else checks against this field for a duplicate!
I've pointed this out to iTunes support, hopefully they've taken my pain on board and will add validation here in due course! In the meantime, kudos to Elisabeth (senior advisor iTunes support) for taking the time to escalate the people in the know and getting to the bottom of this for me eventually!
Hopefully this will help someone else out and save them the frustration!
Thanks for everyone's input along the way.
Barry