Ok so, I ended up replacing the rear calipers (as I the pistons were very seized / tight) and bled the sh** out of the brakes. I am quite certain there is no air in the line.
I am also pretty sure the my master cylinder is actually OK because after bleeding the brakes the pedal is generally quite hard and does not go to the floor at all when the engine is not running, also when driving at low-moderate speed (less than 40kph, 25mph) if I depress the brake pedal fairly hard (or very hard) I get good brake pressure and a hard pedal.
The abnormal behaviour that is still occurring is this:
When driving at low-moderate speed (less than 40kph, 25mph) if I depress the brake pedal very lightly, just barely enough to start to slow the vehicle, then tightly release the pedal, then press lightly again, like feathering the brakes in traffic. Then the pedal will gradually get lower and lower with each press-depress-press cycle until it is nearly at the floor.
I can also reproduce this from being stopped with moderate pressure on the brakes if I release the pressure until the vehicle barely starts to creep forward, and then again press-depress-press around this level of pressure, the brake pedal will again go nearly to the floor.
When doing this, it gets to about an inch or two from the firewall and then it seems to find a point where it won't go any lower and at has some semi-decent brake pressure at this point.
Anyone have any idea what this could be? I'm thinking it might possibly be a bad ABS unit (or sensor?) rather than master cylinder, and that whatever is happening is only happening at slow speed with light braking (causing the ABS unit to allow some fluid past a valve, reducing pressure in the lines?).
If the Master was bad, you should be able to compress it with enough force on the pedal while the vehicle sin't running, right?
So frustrating..