Would increasing rotor disc diameter increase efficiency in a helicopter by reducing disc loading? Despite the obvious drawbacks of a larger rotor diameter would the reduced disc loading increase efficiency during hover and forward flight?
Yes, increasing rotor diameter increases efficiency by reducing disk loading, exactly as you say.

From J. Gordon Leishman, Principles of Helicopter Aerodynamics, section 2.3:


  ..vertical lift aircraft that have a low effective disk loading will require relatively low power per unit of thrust produced..and will tend to be more efficient; that is, the rotor will require less power (and consume less fuel) to generate any given amount of thrust.