I emailed Vaillant technical and their reply was:
The VRC430f should be set to 'Thermostat' and mounted in the main living area. They did not explain what 'Modulating' is even though I asked quite nicely. Anyway, I'm not too fussed about it now as my system is running really smoothly now with the VRC430f set to Thermostat. It's only on for 2 hours in the evening and 2 hours in the morning (3 on weekends) at the moment.
I called Vaillant technical today as well and they confirmed that if the VRC430 was away from the boiler and used as a thermostat you should also set it as thermostat not modulating. They said modulating was for when you had no thermostat and it would use the outside temperature and the curve setting to set the temperature. So I presume you would keep altering the curve until it gives you an exceptable temperature.
They also said for me the curve should be set at 2.3.
Also I have set my minimum temperature to 50c and that seems to stop most of the cycling.
Glad you got it sorted I presume by no thermostat they mean the VRC430 is mounted on the boiler with the VR81 acting as the thermostat possibly.