Thanks for the replies, I have annotated the picture to make this clearer (and drawn in the missing wire!).
I will put decoupling capacitors across the supply lines on the LCD - thanks for the tip.
The link to using an arduino pin for r/w is here: http://www.arduino.cc/cgi-bin/yabb2/YaBB.pl?num=1272869652
(2) According to LiquidCrystal lcd(12, 10, 11, 7, 6, 5, 4); RW is connected to Arduino 10 and LCD D6 is connected to Arduino 5.
I have misunderstood something here: LCD 6 should be connected to arduino pin D11 (aka atmega328 chip pin 17).
Maybe the diagram below makes things clearer:
