Thanks guys, it sounds like it is just a spacer. As you suggest it's probably to ensure that the derailleur doesn't go into the spokes. It seems to run fine with it on but, since I've got enough clearance, I'll probably remove it to improve the chainline and to screw the freewheel on the extra couple of turns.
You mean when you are freewheeling and you look back through your legs the freewheel is making a small circular motion?
Regina BX / Oro and Suntour did this, not sure why but I guess it's due to the internal arrangement. Other freewheels did it as well during PDI when the bike was in a stand and we went through the gears LOL
Yup, that's precisely it. I'm pretty sure that the axle isn't bent since the movement appears to originate between the static and moving parts of the freewheel. Glad to hear that someone else has experienced it before.