OK - not quite sure what is going on.
Enabled debugging - but wasn't reporting anything for the download folder - but was matching files as detailed above. I know I probably should have done a reboot, but this is a Mac, not Windows

Did a reboot - then started reporting permission problems - but had already selected my downloads folder, - made sure i'd got full access, and clicked apply to enclosed items. Still Hazel not able to move files.
I did note that files downloaded since Hazel installed were moving.
This seems to be some weird permissions thing as the group 'everyone' has 'custom permissions' - as soon as i change everyone to 'no permissions' then Hazel will work. Running a verify permissions on my drive in case something has gone strange with a mac os x update - i don't run any other system monitoring type stuff on my machine so that is the only thing i can think of.