From looking everywhere I found that there’s a chance the hanging I was experiencing was to do with the new way that Mountain Lion redirects graphics processing. On an older model Macbook Pro on FCP7 it may cause problems.
I am now running fine on Lion (I had to clean install Snow Leopard from the disks then upgrade to Lion), but I also had my 2 drives on FW800 daisy chained, this continued to create slightly different problems. I changed the configuration to running one of my drives on the FW800 and the other on USB 2.0 which works fine editing 1080p video in FCP7.
So the solution was both operating system and drive configuration, which made it difficult to diagnose. But this solution has been working for a good few months now.
Cheers,
James