Might have found a potential reason for the problems. Not quite sure how I could test it but it makes sense in my head.
After saying my z: drive had no impact on the rest of the computer, I realised that Spybot does actually run from that drive. And I have Spybot running background checks all the time to prevent spy/malware.
So, if the drive is faulty then possibly when Spybot was running a system check in the background, using files/processes from the z: drive, these were failing and then bringing the whole system to a halt.
With that in mind, I'm going to plug the z: drive back in...completely uninstall Spybot...then reinstall it so it runs off the c: drive.