When looking at specifications for HMD, some say they are 42 degree fov, or 80" equivalent at 7' or whatever - On which axis is this measured? Is it horizontal or vertical, or diagonal?

I'm going to guess diagonal as this would give the biggest number for marketing purposes, however if i draw a box and hold it the right distance for my eye for that view size, it doesnt seem to match up with how big the picture looks when i'm wearing goggles. Am i missing something?

I am pretty sure they always quote diagonal unless they explicitly say otherwise, because as you say it is the biggest number. For example the PS3 Eye camera is quoted as having a 75deg FOV on wide mode, but this is actually less than 50deg vertical.

Its usually diagonal (if they don't specify).