I think I have answered my own question:
The "Service directory is not valid" error when using the Adapter configuration wizard appears when there is a space in the application file path
I was using a file path of C:\Users\u0048432\Documents\mywork\Core Data\CoreData.jws for my application
If I rename the folder to C:\Users\u0048432\Documents\mywork\CoreData\CoreData.jws (no spaces) the error goes away and I can use the Adapter Configuration Wizard again.
A strange issue which does not occur in the 11g release (I have spaces in the file paths for all of my projects/applications).
Hopefully this post can be of use to somebody in the future!!!