I nailed it!!!
I checked the real diameter with a cut from the insert and found it to be very close to 7.9mm. I ran a light cut in the cnc lathe to be sure, remeasured and recalibrated the x Axis.
I checked the specs on the index thread insert and found it was 0.4mm. I entered this into the tool table and ran the program again. Slightly better but still not cutting deep enough.
After running more unsuccessful tests with varying OD, I bit the bullet and decided to decrease the Minor (Root) diameter in small steps.

The test nut fitted on at a root diameter of 6.4mm (down from the recommended 6.466mm)

Thanks for your help. I am very new at programming cnc lathes. It took me 3 weeks to stop thinking in cnc mill mode where the tool tip position is clearly defined in X, Y, and Z coordinates to thinking in terms of diameters in the X coordinates. I am a slow learner

Below is a link to a poor quality video of the successful threading routine.
http://www.youtube.com/watch?v=PsP8mnMGV-4Regards
Chrisjh