Here are some pics of the 20mm needle bearing from the transmission counter shaft and the kick starter pinion. Both have failed but I'm not sure which order it happened in...

The needle bearing was all throughout the gearbox and the pieces kept appearing as we dug deeper. No signs of it up in the top end.
The pinion was literally welded onto the shaft from excessive heat.
The theory is that the bearing failed dramatically, putting a huge load onto the pinion,thus creating the heat that slowly seized it to the shaft. You can't really see in the pictures but the inside of the pinion cog shows signs of extreme heat and you can see where it bonded to the shaft. When it finally seized, it engaged with the counter shaft and flung the kickstart lever around with all the force from the engine and stopped the back wheel dead.
There could be a few causes of this and it would seem that lack of oil would be the main one...There is no sign of low oil though, there was plenty in the bike at the time and I am pretty adamant that it didn't ever get low enough to do this.
There is an oil leak from the gear shift shaft and it looks as if the PO (or even further back) made some attempts to cover this up with some little foamy o-rings to soak it up. The oil was welling inside the sprocket cover and leaking from the bottom of that.
The next step is to find replacement parts and get her back together. This won't be happening for a few weeks though.
Dave500 - I already have a kickstart mechanism - thanks for the kind offer, I wish I'd known months ago, it was the first part I bought after it happened! I paid about $70 for it from the States.
I'm looking for a replacement counter shaft though - complete and with bearings intact.
Then I'm going to replace as many bearings and oil seals as I can. The primary and cam chains both look in very good condition, as does the cam chain tensioner. The top end stays as is - it was running well before this, I see no need to change it....just could do with a clean up on the outside.
I could have taken more pics but at the time, it was all about doing the job. The bloke who helped me was a bloody ripper! I couldn't have done it without him. He pulled the front axle out of his CRF to use as a puller for the primary shaft and wore down two discs on his angle grinder getting the pinion off amongst other things...