[SOLVED]

OK, figured it out. There is a step missing from the instructions. What I did was to set the pose as the end frame and then on the first frame I had to select "Zero Figure". Then clicked "recalculate dynamics" in the "Animation" drop-down menu. As the figure animation is calculated from the zero position (and the clothes are default as zeroed), the clothes conform to the figure on each frame until the final frame (the desired pose) is met. I can now start to refine my poses and get the Karate suit and belt looking a bit better. Looks quite floppy here, needs to have more friction I think.