A few gotchas to point out for anyone following behind...
Copy the fresh unzipped arduino 1.6.5 folder where you want it, but don't run the arduino executable until you've created the new portable folder inside it else it won't create a portable configuration when first run, and if you try to do it later you won't easily undo whatever 'permanent' configuration it's already done.
So create the portable folder.
Then run arduino executable so it can create the appropriate structure inside it.
Then copy both the ESP8266Basic and libraries folders from the unzipped espbasic source into the newly created portable\sketchbook folder (you can simply ignore the duplicate libraries\readme warning).
Add the following link into the preferences url
http://arduino.esp8266.com/versions/2.3.0/package_esp8266com_index.json
then go to the bottom of the list in tools, boards manager and install it (it can take a long time).
Once an appropriate ESP8266 board has been selected, you should be able to open
portable\sketchbook\ESP8266Basic\ESP8266Basic.ino
and compile it ok.
Then if you're like me you'll probably feel like you've got a tiger by the tail but don't know what to do with it!
B.T.W. I've compiled and uploaded to an ESP and confirmed the bug is still there as expected, but how do I save a compiled bin file version instead of uploading it?