Ok a bit more on this bizarre issue....
I tried a range of random things, including reinstalling most of the Ubuntu desktop & compiz related components. Didn't help.
So I grabbed Hatari 2.0 from mercurial and built that. Didn't help - same problem.
I also noticed that a similar issue is easily reproduced by toggling the sound on/off in the SDL Hatari menu. The window hangs as soon as you return to the main menu.
That seemed a bit suspicious...
This Ubuntu install is running as a VM under VirtualBox - which definitely has its moments. So I toggled the sound 'hardware' off, and turned 2D acceleration on in VirtualBox, and restarted the VM.
Problem went away...
*Shrug* !
D