Got this working 
There is a thread on this forum that actually details the steps you need Arduino Forum. Although i found the info on youtube (of all places Zigbee / XBee Adapter Configuration Tutorial - YouTube
Basiclly, there are a few pages on the web that say it works "out of the box" for serial communication: this isn't the case! You do need to configure a couple of settings.
Also note that while it can be handy to have the xbee usb explore or the xbee arduino shield, they aren't strickly needed. you can do everything you need just using your arduino board (i am using an Uno).
As Mowcius points out in this thread, you can remove the big chip from the Arduino, and then connect the tx to din and rx to dout on the arduino and xbee respectively. You should then be able to configure your xbees as described in the video above. (although obviously, you would need 2 arduino boards if you wanted to test them simultaneously.
Don't give up, once you have this step sorted, the XBees work like a dream, a real plug and play solution for serial communication (and even then you can delve into the documentation, and start doing some really fancy mesh type things).
Thanks to Mowcius for your help. and to everyone involved in one of the best open source projects ever!
Tim