Well the unfortunate fact is that the head gasket has gone!
My initial fears - financially - were correct!
The heater problem was caused by a restriction in the heater matrix, which I fixed by flushing the system with some heavy duty radiatior cleaner.
So I popped in to see the Merc Specialist in my town and we looked at the coolant hoses which happened to be rock solid - cause -head gasket over pressurising the system.
I booked the car in for a head gasket and valve check then as I arrived home the return hose blew!
At least it happened when I was at home.
So hopefully I wont need any engine work for another 130,000 miles!!!

Cheers!