Well much to my surprise and probably more to do with your contacting them than me, the people at AVG sent me a SysInfo program to run to collect info from my PC along with some test instructions to disabling each component in turn to try and see which one was causing the issue.
Turns out that even with all components disabled the issue still occurs. Of course at apparently randon times Fiddler2 will start quite normally even with all AVG components running. So this is not going to be a quicky fix I dont think, but who knows!
To add more grist to the mill: I think I have just put 2 and 2 together and hopefully made 4.
I have been having odd problems over the last month or maybe 2 months where a browser ( all of them FF/IE/Chrome etc ) will suddenly hang and give the "Not Responding" message in the title bar. Left alone for long enough they normally jump back into action after 2 to 5 minutes. It occurred to me that this may also be being caused by whatever changes have been made to AVG. A friend who also uses AVG(Free) has also reported similiar problem to me ( ok, its the mother in law ).
Unfortunately the only way to test that is to remove AVG and install another AV, and as they appear to be attempting to solve the problem it would seem churlish to just up and move to another product at least until AVG have had a chance to fix it.
Anyway, many thanks for your assistance, and Fiddler!