Hooray!!! - success - thanks all for your help on this. Just for completeness I will post exactly what I did in case anyone else turns up here looking for a solution to cloud updating progress files.
1. Put the save file you want to use in the old file location. On Mac, that's in <home directory>/AppData/Roaming/Lazy 8 Studios/Cogs/playerInfo.dat. On PC with XP, it goes in C:\Documents and Settings\<name>\Local Settings\Application Data\Lazy 8 Studios\Cogs\playerInfo.dat. On a PC with win 7, it goes in C:\Users\<name>\AppData\Roaming\Lazy 8 Studios\Cogs
2. Delete the Steam Cloud version of the file: Steam/userdata/<random number>/26500/playerInfo.dat.
3. Disable syncing with Steam Cloud. In menu - steam\settings on the downloads + cloud tab there is a check box
4. I also had to put steam into offline mode. in menu - steam Go offline... (this requires a steam restart to take effect)
5. Play the game. This is the easy bit. If everything so far is OK you should have all your progress in place. Play 1 level and add progress to update your local playerinfo.dat file.
6. Close the game. Re-enable steam syncing and put steam back into ONLINE mode. (requires another steam restart)
7. Play the game again and this time you should get a fancy steam popup informing you that the cloud game data is different from your local data. and you get the options to do nothing for now. To overwrite local data from the cloud. OR to overwrite the cloud data from the local data.
8. Click overwrite cloud data with the local data and all should be well.
Thanks again for helping me get to the bottom of this annoying problem. It was purely bad timing that caused this as the update was issued in between me unplugging my old pc and installing cogs on my new PC, but everything is good now -