An update on progress (or not)... After running a permissions fixer tool on the hosting site, was able to change the session_save path to 755 but unfortunately still no image caching. I decided to delete the installation and upload from ftp to setup again.
After reinstalling and testing with the default and Zenpage theme noticed cache images were being created (though still some missing on initial load but fixed on refresh) - also no session_save path error. (I got some improvement of cache generation by setting Caching concurrency to 2 but still not perfect)
Then switched to the zpbase theme, deleted the cache images and browsed back to the albums - this time, some missing thumbnails but no cache images at all. So seems there is an issue with the workings of zpbase and the server I'm using. (or maybe it's the server choking even more with zpbase compared to defaults)
The hosting provider has a utility to customise php.ini to set memory to 128mb and turn off magic_quotes etc. I notice when I use this I get the session_save path error on running ZP setup. Regardless, this error doesn't seem to be related to the thumbnail / cache creation problem. And the additional memory doesn't change anything.
All a bit perplexing and almost time to try another hosting provider :-)