Well, the saga continued - I decided to try using GS on the host PC instead. I should point out that on the host PC I was using Edirol UA 25 soundcard. During mixdown, and indeed recording, there were notes hanging / sticking all over the place from all GS sounds.
So, finally, I have uninstalled this soundcard, and replaced it with the Terratec DMXfire card that was in the slave PC. Suddenly everything works.
The reason I'm updating this thread, is that I thought it would be useful for people to know that Edirol UA 25 soundcards seem to cause the problem - the thing is that this card had been recommended to me by the people who build my new music PC!!!
Why Terratec have stopped making the DMXfire range of cards is beyond me as they are so stable and reliable.