I'm guessing that there's some sort of contamination on the wall
that's being affected by the VOCs in your emulsion. Commonly
wallpaper paste is the problem. The solution is to wash it off
with warm water and sugar soap, then rinse, until the wall no
longer feels at all "slimy". An alternative is to hang lining
paper vertically, and paint on that.

Actually, one wall had a fresh layer of skim and that was similarly
affected so that rules out a wallpaper paste contamination.

As the first (thinned) coat went on OK I'm guessing that the second
one was just too thick (I didn't thin it at all and perhaps could have
spread it about a bit more). The zoomed in picture actually makes it
look a little worse than it is. I've just tried giving it a light
sanding with a sanding pad and the cracks sand down pretty easily.

So, my plan of action is to lightly sand down the cracks and paint
over with a coat of 4/1 paint/water, this time taking care not to lay
it on too heavily.
Is it possible to get a final finish using thinned emulsion?

Does this seem reasonable? One guy told me that "if you coat a wall
with pure polybond you won't get a good finish no matter how many
coats of paint you apply". My feeling is that I can get a good finish
once I sand those hairline cracks out and repaint.

Finally, what is the definitive receipe for sealing a skimmed wall
(i.e. bonding then skim) ? Some say mixing 4 parts paint with 1 part
polybond is good for the first coat. There's a lot of conflicting
advise out there. Perhaps the paint manufacturers could offer a little
more advice on the tin.

Thanks a lot for the advice!

Cheers,
Chris.