Please post a photo of your complete setup.
Changing settings on your DSO does not produce any spikes. Maybe you have a bad ground connection somewhere and the smallest vibrations on the table lift the ground pin of the 7805 and therefore it increses the output voltage because of the missing ground path. But without more details of your circuit it is impossible to say.
Ok so lesson for me - I will photo the project and put together the CCT diagrams next time I post asking for help
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I pretty much rewired the whole thing yesterday including an LCD of a different make and supplier (as mentioned above). I have added a more robust GND for my scope and I even replaced the breadboard I was using just in case that was an issue. All is working well.
As I have changed a fair bit I dont think I will get to the bottom of the issue but I think I was either experiencing a GND fault that caused the 1602 to blow or it was a faulty batch of 1602s. Why the DSO seemed to be linked I do not know. I consider myself to be scope competent as an ex RF engineer but this 5v thing is new to me ;-)
If I can stomach the pain I may order a few more of the 1602s and give them another go out of curiosity.
Thank you all for your help.