There is a button on the rich text editor tool bar that looks something like {}.Select your dynamic content and click this button to edit. I must admit that a double or right click would be more intuitive for editors. 

I've just tried that out and it doesn't seem to behave in that way for me - when i select the dynamic content in the xhtml property the parentheses icon becomes greyed out. When i just left click on the dynamic content and then click the parentheses, it brings up the dialog to insert a new dynamic content, not edit the details of the existing one.

Can anyone advise?

First, "Insert dynamic content" must be enabled in Admin mode for the particular page type on the XHTML property that you are using to insert Dynamic Content.  If you are able to insert Dynamic Content I'm confident this has been done.

Next, m ake sure that you are properly implementing "State" (i.e. public string State) including both getting and setting state of each of your settings.  SDK reference: http://sdk.episerver.com/library/cms5/html/P_EPiServer_DynamicContent_PlugIn_DynamicPageProperty_State.htm. 

Then, ensure you've implemented the "Properties" collection (i.e. public EPiServer.Core.PropertyDataCollection Properties) to get and return the PropertyDataCollection containing each of your settings. This may be the missing piece of your puzzle???

Last, the basic steps to edit dynamic content are as follows:

1) Enter edit mode

2) Select the dynamic content control (the yellow rectangle that says something like: {DynamicContent:<DC Name>})

3) Click the Dynamic Content ("{}") button

Check out this post for more info on what might be missing: http://world.episerver.com/Documentation/Items/Tech-Notes/EPiServer-CMS-5/EPiServer-CMS-5-R2-CTP/EPiServer-Dynamic-Content/

Another one that has more details on "State" and "Properties" since my info above does not provide samples: http://world.episerver.com/en/Articles/Items/Farewell-EPiFields-Hello-Dynamic-Content/

Hope this helps.