Ed, perfectly explained - thankyou!
So this morning i went out and quickly made up some ground jumping wires and just hooked them up to the WB wires on the headlight plugs and attached the other end of the wires to ground.
Bingo, headlights work perfectly. Hi Beam, Lo Beam, Flash Hi Beam etc... everything works as it should and no strange behavior with the in dash instrument lights etc.
Happy with that, i started restoring the factory wiring at the alternator and refitted the voltage reg back on the firewall and reattached the stock wiring.
Once that was all done, i checked the headlights again and everything was good.
Then i removed the ground jumper wires from the two headlights, then thought why not... ill try the headlights again and BAM, they work perfectly!
Hmmmmmm, im not sure what this means. Im hoping this is a good development!!!
Just to be sure, i thought id unplug the voltage reg and bingo, headlights stopped working once again and behaved exactly as they did last night - Reconnect the voltage reg and the headlights are good once more.
Now while i had the voltage reg unplugged id checked the wires on the wiring harness at the plug and found the ground wire, was still grounded. IIRC i mentioned that just the other day in this thread, i was expecting that ground wire between the alt and VR to be an 'open ground' as you call it Ed, because i thought it was a ground wire via the alternator housing to ground, or the VR housing to ground however obviously it is already grounded somewhere upstream. Now im focusing on the little WB wire because its a ground, i guess untill i test the wires one at a time i wont know for sure which one is effecting the headlights.
Hmmmmm, why then does having the VR plugged in or not have this effect on the headlights circuit! Hopefully this is a good development to solving the VR/Alt issues

However i hope im not just getting my hopes up for nothing!
I have to say tho, it seems to good to be true, AND
Why did the headlights originally work when i was doing my last 'bench test' with the VR it was unplugged from the factory wiring and utilizing my test wires- cover removed and my playing with the contacts etc... The headlights turned on fine the first time, it wasnt until i tuned them off that i noticed the problems. (spotlights remained on > unable to turn the headlights back on etc...)
Travis.