Thanks for the suggestions.
I will get a timing light today (1/2 price at Supercheap at the moment!) and will check out the timing. I agree, timing could be contributing to high fuel burn.
Good idea on the warm up mode... hadn't considered it. When driving the temp gauge does get to halfway, sometimes around 3/4 if stuck in traffic before the fans kick in, but generally runs with the needle between the indicators. I am running a thermostat and I think it is OK, mind you, it is cheap and easy enough to replace.
It is only being driven 10kms from home to school and then back again so could it be running in enrichment mode for around half the trip each way. Also I found out that my son hasn't been using 5th gear when on the arterial route driving at 80km/h - so that would also impact economy!
However, after having done the ECM fault test (code 55 = all good) the car seems to be running a whole lot smoother....! what gives? I am wondering if it was in a fault condition and in an open loop and now it is controlling???
Also after doing the error code test I left the ECU diagnostic in mode 2 and the ECM light was flashing as I was driving (Mode 2 is the O2 sensor test if I have read the FSM correctly?) so I assume the senor is OK. I then turned the screw back to half way between fully clockwise and fully anti-clockwise and the ECM light stays off.
The idle could be little high (1000 -1200 rpm when cold and around 850-900 when warm) but not enough for me to fuss with it, though I will see what the engine timing is like and maybe adjust back once timing is sorted.