Ok that is abit more comforting.
I suppose the grinding noise is the loose crank arm when I haven't tightened it up fully.
Seems strange that bearings need time to bed in. I would have thought they would be good to go straight out of the box!
They should be, but a very slight misalignment of the bearings can cause friction which will resolve.
Still yours sounds not right as its free running until you tighten the crank down. Try this first, take all of the spacers and wave washer off and tighten both crank arms down and see what happens. It should be relatively free to turn with no grinding, but mayt have a bit of free play side to side. If it does add wavewashers and spacers as necessary to take up the slack.