For those that are interested:
After draining the coolant and removing the header tank, there was no sludge in there, it was clean as a whistle, what had happened was, someone had mixed G12 with Blue glycol Anti freeze, causing the water to turn a horrible brown/orange colour.
This is because you cant mix the two and apparently its really bad as G12 is a acid based anti freeze.
So I tried flushing out the system, but dont think I got it all out, as i didnt remove the drain plug from the bottom of the radiator as this is a PITA, specially as you have to remove the lower floor pan, so I just took the header tank off cleaned it like you said, then started the car and hosed into the return pipe, loads of water went through the system untill it run clear, but I think there is still some in there as its still orangey, and it only took a bit of water and 1.5 litres of G12, I thought it would take at least 3 litres.
So looks like I will have to do it all over again :(