Can you describe what heating stem you have in more detail? You say fully pumped system an d mention a 2 port valve. So I don't cause offence, I'll talk assuming your a homeowner with basic knowledge. How many pipes are attached to the two port valve? The problem sounds like you actually have a Y-plan system, this is a 3port valve with 3 flow options, heating only, hot water only, or both. When C/H and H/W are both demanded the valve sits in what is called the mid position allowing the hot water to be pumped to both the H/W cylinder and the radiators. This would explain why you can only get hot water when both are selected. Mid position valves should as a default, position the diverted to allow hot water unless asked other wise.
Most likely cause is faulty valve motor, replace it.
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