Ok went through that process and nothing has changed. This issue appeared in Lion and I have since upgraded to Mountain Lion and the problem has not been resolved. So everything I am running is at the latest versions including the upgrade to iBooks Author which came with Mountain Lion.
This is really a cosmetic issue which does not affect the performance of the book. Where it just stands out is on my index page where every alphabetical item in columns is a hyperlink to a bookmark and in this case the whole page appears to be 'Red' text but this changes to the assigned colour as previously described.
Now I can understand why Apple in the iBooks Author software would want to show the author/publisher which text was a hyperlink by maintaining the default color so my guess is that this is a code issue and not a setting in the application.
I guess what Apple need to consider is when you export as an .iBook then these items should be changed to the assigned color when viewed on the iPad rather than being left at the default color 'Red'.
I guess I can live with it in the meantime but I hope that Apple are reading this post because I beleive that it might be an issue that they need to address. Thanks for you help Ken which was very much appreciated. If there is any magic which I am not aware of please let me know. Cheers Ant..