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I think there is a mixture of both the fork threads and headset threads being a bit chewed up and therefore not seating in the thread properly.
If you can get the grot out of it all and try getting the headset to seat in the threads correctly, you may have a chance of saving it. Would be worth a go, I personally really like those headsets on an old steel frame so think it’s worth the effort.
If you’re happy to send to a frame builder to redo the threads, you may well be able to use the headset again, and if not you may only need a new locknut to make it usable.
Don’t worry too much about it all. It’s totally fixable. Just get it thoroughly clean and have a go at carefully fixing it yourself first.
Thanks again for all the kind advice! If that doesn't solve my problem.. who would be a decent frame builder in London who won't be charging me the cost of the frame to fix the fork threads?
Also, @Dogtemple it feels like the campag headset is completely not biting on the fork threads, would cleaning the threads make any difference? Completely didn't realise that there was a way to put a headset on other than 'screw it down' so thank you for that advice as well!