Problem worked-around.. After working on this for a couple of days, I finally found this post;

http://askubuntu.com/questions/760026/problem-with-pam-authorization-in-dovecot

in /etc/dovecot/conf.d/10-master.conf uncomment this line;

#default_vsz_limit = 256M

and increase the vsz_limit. e.g.

default_vsz_limit = 512M

Seems like a bug/change in the recent build of PAM. Hopefully this helps someone else doing a bunch of fruitless seaching / debugging :)

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