OK, just to round out this discussion.
I un-installed the Virtualbox-OSE packages listed in Synaptic (ubuntu) (complete with the couple of other associated Virtualbox packages), re-booted and everything worked FINE.
Pretty dumb of me not to realise that the packages in Synaptic would conflict with the Guest Additions (and that apparently one can not run a virtual machine inside a virtual machine).
Except that, in my defence, it is not really that totally obvious - and the error messages really mis-direct. It did take an in-ordinate amount of time to do the research to find the solution to the problem (including reading various parts of the documentation - I just re-read the Guest Additions section of the User Manual and saw nothing in there to indicate this issue, as well as much searching on forums etc - all without any joy).
Appears that the problem has been resolved - and, in addition, the "no such device" problem as well, which involved ensuring that the Guest Additions version aligned with the Virtualbox version and required a re-install after an operating system upgrade (in the guest).
Mind you, I am not complaining about Virtualbox in any way, shape or form. I think it is a marvelous piece of software and I am crossing my fingers that Oracle will leave it be (with its free open source distribution) and not try to ruin it in some manner mis-guided corporate manner.
Thanks for the replies.