I figured it out. I'm guessing this is machine specific to me only which is why I didn't find anyone else having issues.
For those who want to know how I got it working.. please read on.
I re-ran the firmware upload process inside Xplane as you are supposed to as advised by all the great articles. For me the upload utility seems to freeze everytime I try to upload the firmware, I was previously running in full screen mode so couldn't see any logs while it was running. I guess I was "flying blind" :-)
I started via command line XPlane in window-mode. I can see the AVRDUDE seperate process running from terminal of Ubuntu when trying to flash the 2560 with the missing hex file. For some reason on my Ubuntu 18.04 machine, when the command being executed from the plugin utility the path to the hex file is incorrect and fails. As I stated in my question, in the AVR folder, the log shows "cant find file". I opened ubuntu file explorer and to my surprise I can see the 2560_USB.hex file being created when you press upload on the firmware upload utility. I copied the hex file before killing the frozen process (which removes the hex file on closure, now I know why the file was "missing")
I re-ran the same command from the Linux command line but fixed the path to the firmware and it uploaded. I reviewed the AVR log file and everything looked great.
Relaunched Xplane11 and Voila....My Mega2560 is connected with correct firmware and data is flowing.
Now to head over to configurator and start making my panels.
Looking forward to making Xplane even better with SimVim.