Thought I would post the final fix to the problem in case anyone else has these symptoms and can't work it out.
The problem was a slightly bent disc.
I still do not understand why it rubbed all the way around, it doesn't make sense to me, cause it was only bent in one area about 5-10cm wide. I used an adjustable wrench to straighten it out, and now there is no rubbing, its sweet.
Also I took the bike for its first ride on the weekend after fixing it. Hit some mud trails. Went awesome. It has cancelled out all the problems I had with the DHZ initially (cracked banjo bolt causing oil leak, faulty rear brakes, bent disc), and how pissed off I was with it. Im starting to like it now lol