OK so after upgrading to SP6 with no further luck. I tried to update the OS Image from 5.2 to 6.1 via Easy Update.
The same problem occured in which the process started on the Thinclient, I could see activity on the FTP server. The device reboots then screen goes blank and nothing more happens.
So I tried updating all Service Packs/Updates for the current version of the OS which was 5.2, I then tried to update the OS Image to 6.1 and it worked. So I made any config changes and attempted a capture again.
It all seemed to be going OK and I could see the image being uploaded for the first time but when the device restarted I know get the below message and cannot get any further!!
run-int /sbin/init: I/O ERROR
**EDIT
So I decided to take this a step at a time and leave the OSImage on 5.2:
I Updated Easy Update - Still Failed, then tried updating Security Kernal - Still Failed!
So then ipdated HPTC-ThinkstageNG to 1.18.24 - All working - Capture image now succesfull....yay!
So it appears it was this ThingStageNG software causing my issue. I will stay on OSImage 5.2 for my T520's and T510's.