With a 7805, the left hand pin is the input, the middle pin is 0V, and the right hand pin is the +5V output.
So, your picture shows the Traco positioned correctly

See also this picture from the www.mutant-caterpillar.co.uk site:
Mark
hmm that's a good point no actually I haven't tried replacing the battery, it showed the correct voltages on the issue 3b board that's now functional when I was working on that a few days ago but I guess it could be getting low as I've been using it quite often recently.
No. 0.04V = 40mV. Hopefully once it is working and no more chips are trying to be cookers (well, apart from the ULA...), this should drop to a lower figure. But even 40mV is okay. It's caused by the current flowing through the PCB tracks. Thin PCB tracks have a slight resistance, current flowing through a resistance will result in a proportional voltage across that resistance. In electronics it's often called "volt drop". The same problem occurs with long cables.