From first post:
Oh and with the key in pos. II I do have 12v at the small terminal even though the warning lites are not on.
• That's wrong. It should be at ground (for the warning lights) until the alternator spins up. Then it should go to 12V to put the lights out (12V on both sides).

But is this with the red wire connected to D+? If so, 12V could be coming (erroneously) FROM the alternator due to a shorted diode. Disconnect the wire and see what you read at the unplugged end at Key II. With the wire disconnected, you should see 12V at the end, coming from the unlit bulbs.

Also check D+ terminal with the wire off. It should NOT read voltage at Key II. It should be at ground potenial for the lights to light. If D+ is at 12V (statically), that would prevent the lights (12V on both sides). But more importantly, it points to an internal alternator problem.

Fault one:
If I ground the small wire at the alternator the charge, brake fault and bulb failure warning lights do not with the key in position II.
• Grounding where? On the alternator case or a body ground? In either case, this circuit is external to the alternator and may be a separate fault.

BTW, your 1.2W bulb jumper probably didn't supply enough preexitation current when you tried that test. It was a good idea, but that's why those other 3 bulbs are in the circuit at Key II — in parallel the current is additive. I've never seen it work with less than 3 bulbs lit.

Fault two:
If I apply 12v to the small terminal on the alternator and start the car I get no charging (voltage at big terminal stays at 12v).
• Again, this points to a problem in the alternator (unless you're referring to your 1.2W bulb jumper with not enough current). If it was a straight 12V (as people sometimes try), then we're back to an alternator failure.

P.S. What year is the car? Shorted or open wires under the crank pulley could affect that red wire circuit.

Sorry for all the words, but things keep coming to mind..