With the adjust pin grounded the output voltage is around 1.3 volts for the lm317 chip that I am using, however if I draw a current of around 120mA in this condition the output falls to 0.3 volts, below 120mA the output is stable at 1.3 volts. the readings are being taken right at the output pin, the input voltage is well over 7 volts, does this mean my lm317 is blown?
You can safely ground the Adj pin of an LM317 and have it's reference voltage on the output (~1.25volt).
If the LM317 can sustain >120mA depends on it's input voltage and heatsinking.
With e.g. 12volt input, almost 11volt * 0.12A = 1.3watt is dissipated in the chip.
It will likely shut down without a heatsink.
P.S. I assume you have the right smoothing caps on input and output (see datasheet).