Switchgear is original , does the headlight on /off switch work the tail light or is the tail light meant to be permanently on as mine is ?

Probably not meant to be permanently on, although South Africa (you mentioned the bike coming from there) might have a bizarre law to this effect.

I haven't had time to study your photos yet.

Yes, SO important to repeatedly mention the model/origin of the bike as most information and surviving examples seem to be USA models and this wiring is definitely not the same as a USA model. 

Different countries had different regulations such as the extra "parking lights" and in Japan they had things like "speed warning lights".

That said, Yamaha generally used common wire color themes so it should be possible to figure out with some simple detective work with a meter...  a diagram from a similar era/area model with the same lighting features would be helpful and probably can be located. 

Is it possible to post photos of the top and underside of the main/ignition switch?

i.imgur.com/H5dvXNv.jpeg it was a new one from Yambits

Thanks for photos.

Where does that blue wire (number 5) and its black partner go to/from?

Maybe i'm very wrong, but blue is usualy instrument illumination bulbs & tail light with magneto driven AC lights on older models.

In the tech data, 1985 XT 350, on page 24, a wiring diagram that matches that switch. Looks like, OFF, AUX, RUN. tailight on for AUX (source battery) and RUN.
12V regulated, but 45W high beam.

If this is a different bike, I enjoyed the read anyway. haha.

The problem could be exactly what Gr8uncleal seems to have surmised many posts ago... 

You originally said original switch had a "park" position and everything was working.  The aftermarket switch from Yambits is not the same as "original switchgear" for your model as it does not have a "park" position. 

Now with a different switch without the park position the taillight is on all the time?  Seems like a major clue to me that says your problem is trying to use a switch that is not the correct part for your model?

The blue number 5 wire according the wiring loom instructions are the instrument lighting , yes you may well be right about the ignition, however i do not  mind the tailight being lit all the time its not a bad thing. Looking at different XT250 models from various countries some came with a separate speedo & taco some just a single speedo & some an all in one so i guess the new loom is trying to accommodate all of these its just working out what goes where & making it work & obviously making new & old work .