I think we're getting somewhere now - I didn't get the expected result when I changed the code to that above. My bat was as follows:
@echo off
:begin
if _%1_==__ goto end
echo Processing %1...
C:\exiftool\exiftool.pl -k -echo "test1" -echo %1 -echo "test2"
pause
shift
goto begin
:end
and once more exiftool ran with the help interface. I usually run Exiftool through a custom button which launches the bat file externally, but during this testing I've been trying to run it by dragging both the XMP and the RAW, as well as the whole folder onto the bat.
I think that at this stage it would be useful to give you a real overview of what I'm doing - I wrote a post a while ago to explain my method to others:
http://www.dyxum.com/dforum/walkthrough-to-adding-lens-ids-in-lightroom_topic39797.html?KW=
and I have also shared my troubles on the same forum where a couple of other users have described running Win7 64bit and not having any problems:
http://www.dyxum.com/dforum/topic54702&get=last.html#602023
I look forwards to your response! Adam