Hey Dudes, thanx for the tip.
Some other guy says you must also remove the SD card or spacer.
Revised method as posted which worked for me !!!!! :---

1: Power Off Phone & remove SD/MMC memory card or blank spacer
2: Hold down "Camera/Voice Recorder" button adjacent to power button
3: Power on Phone ... message comes up: "press any key to enter boot loader"
4: Immediately press and hold down the joystick button
5: Release the "Camera/Voice Recorder" button

At this point, you're looking at a menu with 1->8 on it, select 8 and the phone should hard-reset.

(If you end up at a red/green/blue screen, you've got it wrong, and you'll need to whip the battery off and start from scratch!)

6: Allow the phone to shutdown.
7: Re-power the phone & allow the phone to shutdown a second time.
8: Re-power & enter your normal PIN code.
9: Re-enter all the custom settings from default
10: Re-sync all your Outlook data

This saves the hardship & inconvenience of return shipping to O2 agent.
Cheers from DownUnder..