The camera works fine on auto settings, but when I

When I've encountered this problem before it has been caused by a faulty aperture mechanism in the lens, but your answers to my questions pretty much remove that as a cause.

All that leaves as the culprit is the camera body. If there was a genuine fault then the same fault should be occurring when in fully automatic exposure mode, and the fact that you can compensate for the fault using the exposure compensation button is good news as it probably means that the fault is due to an inadvertent camera setting: the exposure compensation function is inoperative in fully automatic mode. The E-410 has two user-definable "custom reset" settings (page 70 of the manual) and I suspect these may be the cause.

I suggest that you go into Menu and then to the camera 1 symbol. From here you'll see "Custom Reset Setting" with the options "Reset", "Reset1" and "Reset2". "Reset" restores the camera to the default factory values and should cure your problem. Note that afterwards, the file numbering on the photos you take will also be reset so you may wish to manually adjust the file numbering afterwards to continue where you left off with you last photo. Not doing this will result in file name conflicts when uploading images to your computer.

If this doesn't fix your problem then the E-410 definitely has a fault and it will need to be resolved by an Olympus Digital service centre as the cause will be beyond any DIY resolution. The fault will likely be a software rather than a parts issue so a repair is likely to be cost-effective. Your camera had a one year worldwide manufacturer's warranty when sold new so it's possible that the camera is still covered (the E-420 was released early last year, but new E-410s were still being sold by some retailers early in 2009). There was also an option to extend the warranty so if the standard warranty has expired you might still have cover.

Normally I'd test all of this on my own E-410 or E-510 (same menus/software) but my wife has gone to France with them!

Hopefully I've hit the mark and been of some assistance. If so I'd be grateful if you'd return the favour by rating my answer.