Recently I have found out that my cam timing is not precise and wondering what it is that makes it so? ie, new belt, tensioner, incorrectly installed etc?

And, if it is 2.5 degrees retarded now, it can then be set to 5 degrees advanced by using the next tooth on the crank sprocket? Which would offer more power throughout the revrange wouldn't it?

Additionally, when removing the distributor I noticed that there was a bit of play, which would equate to being able to minutely adjust the ignition timing. Would this offer any difference at all to the car?

Interesting question, got me reading the manual. The ignition timing is controlled by the crank angle sensor, so turning the distributor would have no effect on timing. There is a cam shaft position sensor in the distributor, but this is to tell the ECU when No. 1 pistion is at TDC so it has a reference as the crank angle sensor only gives crank speed and not position. This is so it knows which injector to open. Also the ECU retards the timing during a gear change to reduce torque and make the shift smooth.

As for advancing the cams, this has been recently covered in another thread.