Don't think it's a spacing issues as I was very careful taking it apart and putting it back together. The bushing in the centre of the pulley presses against each of the plates and holds them apart. Also there is side to side play in the pulley to allow for slight derailer adjustment.
After a bit more Google-Fu (seems spinning freely isn't a common term whereas resistance is), I think it's a function of the rubber seal on the derailer. A couple other posts
here and
here, report similar issues with the upper jockey wheel. I've since fitted it and seems to be running fine
