Peltier power supply voltage dropping
Why am I getting a drop in voltage when the PSU clearly is capable of
  delivering enough current? Am I missing something obvious?


When you power the peltiers on they are not only an active load, but can also generate power. If there exists a temperature gradient on the peltiers before the supply is powered up, then they could actually be generating power, and if this power is working against your supply then that could explain the need for more current. 

Or the peltiers could be shorted out from improper handling. Check them with an ohm meter, there shouldn't be a direct short.


  I have tried connecting one and both of the peltiers directly to the
  PSU without the PWM controller and get the same readings. Anyone any
  ideas please ?


Don't connect the modules in parallel, make sure you handle them properly. When you start them up, make sure there are no temperature gradients across the modules. 7V @ 4A is only 28W so if you are indeed having trouble (and actually measured the 7V across the load), I would suspect the supply, get a real power supply instead of an ATX supply. 

Keep in mind peltiers have self heating, so when they have the full voltage and you don't have heatsinks, this is not an optimal condition.