Has anyone overcome this issue with PSP X2 please, short of upgrading to Ultimate?

Don't hold your breath. Corel is unlikely to add any new RAW files to X2. I've been waiting a year for them to add .RW2 files from my LUmix LX3. Ain't gonna happen.  

As someone new to Corel and PSP they're not persuading me to stay!

Upgrading to Ultimate is the only choice, but isn't a very good one. Ultimate is a fine product, and I use it all the time, but not for raw conversion. PSP versions X to X2 Ultimate all do a very poor job of raw conversion. The quality is low and the lack of a raw pre-processor stage negates most of the advantage of shooting raw.

I do the initial raw conversion in another program, then use PSPP X2 Ultimate for fine editing.

It might prove useful if you could let Corel know of your disappointment with the raw handling of PSP by using the 'E-mail Corel' tab at http://support.corel.com/ (You may need to click on any of the links to a Knowledgebase article for the 'E-mail Corel' tab to appear). Don't expect an update to the original version of X2 though. Corel, like most other companies, don't provide raw updates for superseded products.

Look at this illustrated thread that shows just how bad Corel's treatment of raw files is.

Like Tim, I use PSP for editing my photos after I've converted the raw files.  I use ViewNX (Nikon's free converter).  I used Lightroom 2.3 seriously for about six months; I remain impressed by how much better the ViewNX results are, and how much easier it is to obtain them, than my best efforts with Lightroom.  If you haven't used your camera-manufacturer's free proprietary software, give it a try.  Chances are that it's quite good for raw conversion; after all, the manufacturer wants you to buy your next camera from them, too.  And because it's targeted specifically for the images your camera makes, it's likely to be better than anything Corel could provide.  Using the software Nikon developed for my Nikon, I'm much less annoyed by Corel's poor raw-file support.

Thanks for your replies everyone. I'm disappointed with Corel, but not surprised as they are, after all, a commercial company and therefore need to keep selling boxes in order to make a profit.