I have finally cracked it (I think) at least for
VPS Hosting’s. I set file/folder ownership as in my post above, I changed the apache handler to suphp. Installed Joomla 1.5.3. with no problems FTP layer included, I have installed templates and components including a gallery and Virtuemart 1.1, all work as expected including auto thumbnails. The file manager Extplorer will still not install, but another file manager NinjaXplorer installs and is fully working, uploading, editing, deleting and extracting. I will continue testing this over the next few days, I will update here if I find any more problems.
PS. This is all in Native mode not Legacy.