Figured out my first problem - the file needs to be exported as type 0 and given a type 0 name within Cubase during this process.

You would have thought the manuals would have been more comprehensive on this seeing as an external daw is now the only effective way to work with the direct performance recorder being so limited.

Highly recommend that you setup your MIDI IMPORT and EXPORT settings in Cubase as shown below:

Exporting data from your DAW use as few of the "DAW only" aspects that would be meaningless to an external device as possible. Notice I have Type 0, 480 clocks per quarter note. This will ensure your data is imported properly by your Montage.

Reversing the process: When setting up to Import a Montage .mid file you should set the DAW to import the data to a single Track (set to CH = ANY) this way you can select the Montage as a target for that single track and then when you split it (using MIDI > DISSOLVE PARTs) the data to separate Tracks goes there pre-assigned to the Montage. If you set to automatically separate it, you must set the MIDI OUT settings to each Track.

As a side point I had also recorded the file as audio - is there a limit to the length of wav file that can be placed in a Init drum key? The file is about 3 mins long and I want it to play the entire length when triggered from one key so that I can play along with it. I can trigger it from an Init awm2 part but not from a drum key.

The maximum length of an audio file assigned to a Drum Key is 6min 20 seconds at @44.1kHz. The file must be a .wav, must be a sample (cued to begin at Note-On). The Drum Key can be instructed so Receive Note-Off is OFF, so that when the AEG Decay 2 Time is set to 127 (HOLD) the audio will play without you having to hold the key down. There is a silence detection algorithm at work in the background. If absolute silence is reached for a period of time the Note is forced to quit, and polyphony restored to the resource pool.

Ah - the silence detection might be the cause then. I tried inserting the wav into a awm2 Init part and it played back but there seems to be a couple of seconds of silence at the start of the wav. I'd need to look at the original cubase file again to see where I placed the locators for mix down - I know I didn't start playing at bar 1 as I wanted to make sure I caught the sustain pedal at the top of the first bar.

I'm playing a Faure piano duet where I would record one part and then play the second part live over the top of it and was seeing which would be the most straightforward - to play along with a song or have the part as audio which could be placed in a performance part.

You are triggering a sample, so empty space is not allowed. A sample playback device is optimized to work where the audio is cued to start precisely when the note-on occurs. It is fundamental to positioning the audio properly.