Managed to sort the problem with a fresh install BUT..................................
Think we may have solved the solution while doing a fresh install.
Applecare went through some checks like checking Disk & Permissions (told them we had already checked them.

Then after a few calls to a higher level person then her she asked us if we could to install Mountain Lion on a new external HDD (good luck we had one).
Install Mountain Lion on to that then re download Mountain lion and install but this time install to the original Macintosh HD.
That didn't work either after 4 hours of doing that.
Applecare had scheduled another call the next day at the same time to see if it worked.
The next day arrived and my dad received no call from Applecare

So he proceeded to back up (double back up as everything is on Time Capsule).
Today we installed Snow Leopard back on it (just to reset back to how it arrived)
Upon deleting the Macintosh HD partition we then went to install Snow Leopard back on to the hard drive when the installer informed us we could install to that HDD
I ran Disk Verify and HDD came back with
The volume Macintosh HD appears to be OK
But i noticed that the Repair Disk was still available to click

so i clicked it.
And it came up with some message about sorting boot parameters.
After that i could select Macintosh HD and install Snow Leopard.
Which got me thinking
What if that was i had to do in the first place but because Verify Disk had told us
all appears to be in order we never clicked repair (i know fat jez.................. i hang my head in shame)
Anyway fresh install and Mountain Lion now on my dads iMac.
Cheers peeps for all your suggestions !