I've managed to fix my problem :)
The root cause of the problem is that my external drive (WD My Book Raid 1) has my library on it and had gone into hibernation while the phone was restoring the ios. This meant that when iTunes had finished installing the operating system on the phone and tried to reinstall the content it could no longer see the external drive. Why my drive is doing this is a different problem. Details of what I did to fix the problem...
Please note that these instructions are specific to my issue of an iPhone 3GS running IOS 6 with iTunes on a PC and the library on an external drive. It worked for me but proceed at your own risk.
Set iTunes to play content from the library so it is constantly accessing the drive and stopping it hibernating.
Make sure the iPhone is disconnected and turn it off ( to turn off press and hold the Sleep/Wake button for a few seconds until the red "slide to power off" slider appears, and then slide the slider).
In iTunes go to (menu bar) Edit, click preferences then devices in the top of the popup window.
In the device backups box is a list of the backups stored on your computer for your device with a device name and date. In my case the several failed attempts to restore the phone had left a few backups that are newer than when the phone was last working. I highlighted and deleted all backups FOR THAT DEVICE created since the phone was working. NOTE - YOU WILL LOOSE ALL CONTACTS, TEXTS, LOCALLY STORED CALENDAR ENTRY'S ETC. CREATED SINCE THAT BACKUP
Once you've deleted any unwanted backups click OK to exit.
Connect the iPhone to your PC
Put the iPhone into DFU (recovery) mode. There are various videos / guides online just search or try this one which is MAC specific but identical for a PC.
iTtunes will then guide you through recovering the phone.
For me, once the phone operating system had loaded (15 mins ish) this initially came up with an error message (100+ tracks couldn't be found...) but it did back up everything fine (took several hours). I even got back all scores on games etc. so am very happy. Of cause all progress, changes etc. made since the last backup were lost, but I'd rather loose a couple of weeks information than everything.
Note to self - backup more often! (and did someone mention iCloud.....?)