PSU schematic

[Terry]

The chassis is definately live in regards to the 9v AC in pins of the power input pins. No biggy, just took the plug apart and disconnected the shield from the metal plug shell.

I still don't understand your problem here, Andy. If you ignore the ±12V rails, the main +5V rail is fed by a half wave rectifier, the output of which is positive with respect to the chassis - which is connected to one side of the incoming AC supply.

However you look at it, one side of the AC supply must  be connected to the chassis - as shown on the circuit you provided.

So why do you stress the importance of not connecting the shield to the shell? The AC supply is connected to the chassis on the socket - what is wrong with doing the same thing in the plug? 

Perhaps I'm missing something here - please tell me what I am missing.