First, install the After Effects CS5 (10.0.1) update. That update includes a lot of RED fixes.
> Just want to make sure I start right. I've done a bit of reading and it seems the suggested thing (if grading in AE) is to at first use the 'exposure' effect on R3D footage to get the most out of its dynamic range.
Is this correct?
I think that you're misunderstanding the advice that you've been given.
_If_ you need to adjust exposure, then you don't want to do so in the RED source settings because the RED software doesn't preserve overbrights; instead, you would leave things such as exposure untouched in the RED software and only manipulate them in After Effects. After Effects color correction effects like Exposure effect do preserve overbrights.
> I have edited the AE text file as suggested here to correct an import interpretation on colour for R3D files.
Good, so now you're interpreting RED files as being in the HDTV (Rec. 709) color space.
> But what colour space should my project be in? I have already set the project to 32bpc but have no idea what 'working space' to use in the colour settings.
This question means that you need to learn the basics of color management.
The basic answer is this: The project's working color space is that color space in which color operations are performed. If you're only outputting to one color space, then it's most convenient to set the project's working color space to the same as your output color space. So, assuming that you're outputting to the same color space as that of your input files, you might as well stick with HDTV (Rec. 709).
That's great thanks. Yes I did mean the exposure settings in AE as you said.
Once I have applied the update - do I need to re-import my r3d files? Re-build the entire project?