I found the thread after posting, but there is no solution other than the workaround that I'm using. I've registered the problem with Altera MySupport.
Using strace confirms that Quartus stats the file and stat returns ENOENT which is correct as the file doesn't yet exist. I suspect that there is a coding issue as instead of then creating the file, the process fails with an incorrect error message. I also suspect that they've got their permissions mask back to front as 'touch'ing the file only works if global write permissions are set. The minimum permissions required on the file are chmod 606
filename anything less doesn't work.
[pid 22173] stat64("/home/ngunton/Vhdl/Modified_dff/my_dff.inc", {st_mode=S_IFREG|0606, st_size=0, ...}) = 0
[pid 22173] open("/home/ngunton/Vhdl/Modified_dff/my_dff.inc", O_WRONLY|O_CREAT|O_TRUNC|O_LARGEFILE, 0666) = 16