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Gotcha!
Either the shell needs to be faced or the threads need to be re-cut.
If when you install the BB there is an equal and opposite gap on the NDS, then the shell is off. This shouldn't present you with any problems unless you are using an external BB, as the cups are independent and wouldn't be parallel with each other.
However, from what you wrote originally I think the shell is threaded on the DS. This means the NDS and DS cups don't screw in parallel to each other and when you tighten them up the axle needs to bend to fit in cups. Obviously it can't so it binds the bearings.
Scilly.Suffolk-
Thanks.
I was afraid that the frame shell may need some repairs. It must have happened removing the stuck bottom bracket that was in before. From memory, it went in fine and was sitting square.
The other bit you've described, kind of makes sense. Although in my last attempts, I only installed the DS and when tightened to a point, the spindle stopped spinning smoothly. Probably because that little 0.5mm threw the angle out a fair bit over the length of the shell.
I have also read about folk installing the DS and NDS simultaneously to try and align it. Although believe this is not recommended!
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Update: I cleaned up and tried an older BB in the shell. It is every so slightly out of alignment, but once tightened, not too noticeable. And more importantly, there is no resistance on the spindle. I'm not sure where to go from here. It could be the bottom bracket then I guess. Or just getting the thread looked at, as you say, may help. I really don't want to spend much more money on this!
getfuckedfoureyes
I uninstalled it all, but have done a sketch to hopefully better explain.
I doesn't screw in straight! That's a better description than "misaligned".