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Unfortunately the disc got hot and started to seize again. A rebuild of the master cylinder again I think.

There is an adjustment nut for the bar that sticks out from the master cylinder to press the brake light switch.  I think I adjusted this badly once and it prevented the piston from travelling back far enough to allow the fluid to return to the reservoir. Drove me mad for ages trying to sus out what was going wrong.  I noticed my rear disk glowing orange as I passed a motorcycle shop window.

I *think* it was that adjustment - there was definitely something that was preventing the piston returning far enough. There may also have been a nut and bolt type adjustment on the back of the foot rest plate/bracket?

Thanks Scotch. nail on the head there! disconnecting from the insanity was exactly it!
I'm glad to hear you think the Ethanol shouldn't be an issue, I seem to be getting a bit paranoid over that one.
Ok I'll have a look at the HT lead and cap. I have a couple of brand new 45 degree HT caps ready to put on 1 and 6 anyway,as my old ones are right angled at the mo. I pulled number 6 off when it was idling and the engine didn't change, other than a clicking sound, I guess from the HT cap?

Thanks zed_thirteen. Funnily enough I did adjust that nut that takes the pedal pressure off the master cylinder as I had that issue in the past too. Strangely I hadn't properly bled the brake as it was still spongy when I test rode it, yet it still started to bind up. I actually removed the rear pads to be able to ride home, as I didn't want to warp the disc, plus the rear brake wasn't really doing anything other than dragging.

I do have a confession, when I rebuilt the rear master cylinder (when I bought the bike) I noticed the "tang" (if that's the term) that activates the brake light, was missing. So I made one, which has been working ok since...I hope.
I also noticed...(drum roll for some serious eye rolling)...that the master cylinder piston had been cut in two . I had hoped that it may be some increadible modification that only Z 13 owners know about.. . Me being cheap and wanting to get riding again, I stuffed it all back together and it worked for probably 2000 ish miles so far.  I think I'll get a new one now though to eliminate that possibility.
 

Just adding to the discussion. A couple of years ago I think it was Lucien Harpress that had a similar issue and a member brought up a point that there are 2  pinhole ports from the piston bore to the fluid reservoir and he had one of the 2 ports blocked. it was difficult to see because of the position of the port. He only stumbled upon it because he had decided to repaint the master and then decided to bake the paint  in an oven at 200 F. What happened was a plastic plug melted out revealing the tiny port. The plastic plug was required to plug the drilling point for creating the port.
So my point- Look down the piston bore and find the 2 ports and check clear the 2 ports so that when the piston returns to the stop position, the ports are open to relieve the pressure back to the reservoir. As I remember it, the second port was something like .020" (.5mm)
Post Script- Found it see  Master Cylinders

Thanks for the info and link Kawboy. Sorry for the delay, I jumped back on my 69 Nova restauration while I wait for the new rear master cyclinder to arrive.   I'm going to check those holes are clear for sure.

Ok so I rebuilt my rear brake master cylinder with a new piston and seals. I cleaned the 2 tiny holes as mentioned. They were an illegitimate son, to get at. They are both larger on one side than the other but in opposite directions. 

Of course, being a total fffff.... er idiot, I bled the brake then remembered I hadn't put the brake pads back on.   Then I couldn't press the pistons back out to get the pads in, for some reason. Not wanting to lever too much on my now straight and new disc.  I took the caliper back off to press them back. ...by hand in the end... Maybe it really needs an even pressure and not just on one edge.

 I purposely left the adjusting nut super low, so I'm sure that the piston will return far enough back up, to release the pressure on the pads. Is it normal for some drag to still be present all the time on the disc? 
I test rode it for 5 mins without using the back brake, and it still got fairly hot...Is that normal? I used it as normal for another 5 or 10 mins in town and by the time I got back it was pretty hot but it still spins, with some drag.

At least it was firing on all cylinders so that seems to have corrected itself all on its own....Yeah right!...

It's normal for the discs to get hot to the touch.  The pads are always "floating" on the disc !  If you can cook a meal on them then there's a problem.  Sounds like you have this sorted-out with the cleaning of those ports.