Solved but not happy with it.
Save and protect pst file somewhere.
Reinstall but do not set up an email account.
Sync will now work (did for me).
Now add email account in Outlook.
Outlook has 2 sets of folders for everything now.
Copy your email account contacts to the Outlook profile without email syncing to your BB.
Do same with Calander.
Now user has to enter the calander entry on 2 calanders!!
Now user should delete contacts in Outlook profile syncing to BB and copy paste in those from profile with email address.
Long way round.
My next step is to move email off Windows Live to another Service Provider to remove this extra work. Or next phone will not be a BB but a Windows phone.....