An update of my progress...
I have tried creating a brand new Rasbian Stretch image and only installed docker and the pihole/pihole:v4.0_armhf container configure to run in net host configuration and this works.
I am assuming that when the docker container is created it copies some of the host OS settings, and in my case they where wrong. See resolv.config comments above.
When I try to run the pihole container in dockers default net bridged mode DHCP does not work and I get the diagnostic error:
[✓] IPv4 address(es) bound to the eth0 interface:
172.17.0.2/16 does not match the IP found in /etc/pihole/setupVars.conf (Use IPv6 ULA addresses for Pi-hole)
And the run time error:
dnsmasq-dhcp[479]: no address range available for DHCP request via eth0
I will continue to run it in net host mode as this works but I would prefer it to be run in bridged mode.
Thanks for all your help for getting me to understand the problem...