Thanks for all the input everyone. After a very frustrating morning calling OZ head office, OZ London, various embassies, I have gotten to the bottom of this.

Apparently the new rules for stopover/transit entry into Korea is that one must be able to show visa to enter the next country after Korea, not just onward ticket. So in my case, upon arrival in ICN, I must show not only onward ticket to SYD but a visa to enter Australia.

The idea is that if the next country after Korea refuses entry, the passenger will be sent back to an unwilling Korea something Korea wants to avoid.

It gets a bit tricky since Australia has electronic visas. OZ insisted that this must be visa in passport. I have insisted that a printout of the electronic visa confirmation should be enough.

All of this is rather farcical, I doubt immigration in Korea will be able to see whether a passenger has the right to enter the next country or not.

In either case OZ have relented and issued the ticket. OZ confirm that travel will not be denied by OZ, in worst case, entry is denied in Korea and OZ will rebook onto direct connection to SYD.