Thanks ever so much for your reply. The different layer files tried included one from shapefiles sitting locally and others loaded to SDE. They all fail to export with their alias names.
I just tested this on my machine too and the tool seems to ignore whether "Use field alias as column header" is ticked on or off. This was tested with SDE and local data in ArcMap 10.2.1...have you reported a bug to ESRI?
Thanks Simon, nice to know the problem was not peculiar just to me! I have not reported the bug to ESRI - hoping perhaps they would pick it up from this forum? However perhap if you can advise on how I could report this officially to ESRI that would be great.
Ok, just got off the phone with a most helpful chap at ESRI UK (I logged the call with them). The issue is that the Table to Excel tool just exports aliases from tables not layer files. This means that it will only work if the alias is defined in a geodatabase or SDE table. (The SDE table I was trying above to export did not have an alias defined only in its relative Layer file NOT in the original table).
So thank you ESRI UK for the help there. It would be great though for future updates to have a Layer to Excel tool.