Just got off the phone with Apple Support, really helpful guy. He knew exactly what I was talking about as he had many calls from people all asking the same thing (including people from Three).
In short, he is adamant that it is down to the carrier to configure the services linked to my account and sim. The iPad will hide / display the hotspot feature as dictated by these settings.
He suggested swapping to a sim that does support the hotspot however at this time I'm not aware of any in the uk. Also, he suggest resetting the network settings (data and wifi) in the Settings > General > Reset menu. (No change thought). Also he suggested connecting to iTunes to get the latest carrier updates but these are pushed over wireless on IOS 4 onwards.
I definitely feel the ball is in Three's court. It seems Three network support need to speak with senior people at Apple to understand what they need to do to activate this thing!!
I wonder how long this will take!