I updated my site just now as I thought it would fix the problem – but the problem is still there. Previous to that, I haven’t updated wordpress for a while.
1) Yes the ‘blog’ template has been applied to the page.
2) I have checked the link ou posted above but not sure how I would need to modify it to work with our site.
3) There are no queries before the loop. Would it help if I posted the entire blog.php page here?
4) Also, the text you posted above was added in WordPress admin to the Blog page. The problem is that no blog entries are appearing on that page.