(not sure if this is really a bur or improvement) - In the advanced settings for the profile there is a checkbox entitled 'Update contact on duplicate match' ... the help text for which says:

"If you are using the profile as a contact sign-up and editing form - this option controls what happens if the data matches an existing contact record. If this option is enabled, the matching contact record is updated. Otherwise the user will get a "duplicate record" warning, and their input will not be saved. Contact matching is based on your configured "Strict" rule for identifying duplicate contacts"

However, the strict matching doesn't apply when the profile is embedded in the druapl user registration form (/user/register), which is technically a 'contact sign-up' and the match is done on email alone. I spoke to Mr Lobo and dgg (name?!) and Donald came up with the attached patch which seems to do the trick. With this patch applied, the strict matching rule is used for profiles embedded in the Drupal registration form.