With great relief I managed to work out the problem and as luck would have it I solved the problem just 10 minutes before Microsoft support called me to investigate the bug report. Thanks to Lex Li for pointing me at the support website instead of the connect site for reporting the issue.
So what was the problem? I already had VS2008 installed and had setup the symbol server settings so I could step into and see the source code for the framework Windows Forms code. This has been very handy in the past for tracking down problems by allowing me to see exactly what was happening in the base classes. Reflector is an excellent tool but there is nothing quite like stepping through the real code.
Well it seems that VS2010 was using the already defined settings and this was the cause of the issue. I removed the symbol server settings and it all working perfectly. Put them back again and it takes essentially forever to try and start-up debugging an application. It never occurred to me until I checked that VS2010 would automatically be using the same settings as defined in VS2008. I just assumed you had to set them up manually for each Visual Studio version.