Hi Grumpy,
Backed by the confidence of knowing I had a good forumn I could turn to for advice if I ran into trouble via yourself and also Rob who has also kindly offered to help I got stuck into this thing this afternoon and together we have had some great success in identifying the problem. (Grab a coffee this is going to take a while.
The gearbox is similar to a HRB216 or HRB217. Looks like the HRC216 may have been correct after all and the actual gearbox for that model has been discontinued and not shown hence I couldn't see it in the diagram you pointed me to. (which I now think is the correct one or very close to it)
http://www.planopower.com/store/honda/hrz216tda.php
Pic of gearbox assembly in situ. Note belt in disengaged position. [Linked Image]


Pic of gear assembly with the cover removed. Very little to it. Pulley connects directly to a (semi) worm gear that drives the main drive gear. Will be clearer in pics that follow.
[Linked Image]

Here it is removed from mower and simply separates once top cover is removed. [Linked Image]
Note worm gear and pulley shaft has a pressed in sealed bearing held in place by the visible circlip. Even in this disassembled state the pulley is stiff and difficult to rotate. Seriously suspecting this bearing is shot. Hoping its just a bearing an not some complicated minature clutch mechanism as it's difficult to tell while inside the casing.
[Linked Image]

Closer view of worm gear and bearing.
[Linked Image]

Shaft and bearing removed. I'm no expert but I think it's toasted. Rubber seal has been completely cooked.
[Linked Image]
[Linked Image]

Unfortunately it doesn't look like you can get individual parts for the gearbox but even if I need to buy a whole new gearbox assembly it will still turn out to be a cheap mower. But I will pull that bearing off tomorrow and get the vernier calipers out and measure it because I am pretty sure it will just be a standard size sealed bearing that I can pickup anywhere, or on ebay.

However after all that I am still missing one of the axle cogs and the a couple of wheel bushes/bearing which I may need to get from a Honda parts supplier.
Any advice on the best place to order them from.

Thanks again for all your help.