Does my U.S fiancee have to file the USCIS form I-129F in the States?
She can file from overseas, but would need to have a US address for any correspondence to be sent to. A relative's address might work for that. The application would need to be sent to the correct service center as well. That would depend on what part of the US that relative's address was located. One thing to consider is that she wont have any US income to show proof that she can support you, so you would most likely need to get a co-sponsor.
How much is the whole thing likely to cost? we have a somewhat small budget
The visa application is $170, then you'll have to pay for your police records, your medical exam and then there is a fee you pay at the interview. I believe that is $100.
Once you are in the states, there are additional fees once you adjust status in order to get your greencard.
Do i have to go for an immigration interview before i can claim the K1-VISA and if so is it in London? 
Yes.
How long is this process likely to take? i was hoping to work in America under the K1-VISA and i have already arranged work to begin on the 24th of Augest.
The process could be as short as 5 months or it could take years, depending on various factors. You cannot work under a K-1 unless you receive a temporary EAD (employment authorization) at the Port of Entry. Currently the only POE issuing temp EADs is JFK airport. This EAD is only valid for the length of the K-1 visa (90 days) and once it is expired you must stop working until your adjustment of status is complete.
But the way i understand it at the moment is i will be unable to fly out on a K1-VISA because my Fiancee is currently in England with me and would therefore be unable to file the forms in the states. I understand i am not aloud to travel to the states under a waiver VISA and then apply to be married so I'm not quite sure what options we have at the moment considering its important for work reasons i am in the states in Augest (we have a one year old son to support).
You can certainly fly to the US on the visa waiver program and marry your fiancee there, but then you would have to fly back to the UK and wait for a k-3 or cr-1 visa to be issued. You cannot enter the US on a VWP with the intent to immigrate and the burden of proof would be on you at the POE that you did not intend to immigrate. (showing a letter from your employer stating the date they expect you to return, return tickets, lease or mortgage documents for your home, etc...)
If we marry in England i understand we can not live together in the U.S because of green card processing times?
You could marry in the UK and then apply for the CR-1. How long has she been in the UK? Does she have Indefinite Leave to Remain? If so, you can apply directly at the consulate. This is generally faster than applying from the States.
If she doesn't, you can apply using a relative's mailing address for all the correspondence. And as long as she is legally allowed to remain in the UK, you can wait out the processing time together.
That is what I'm planning on doing. I had originaly applied for a K-1 for my finace, but we are abandoning that so I can move over there for a year to be with him and wait out the immigration process to the States together. I'll be using my Dad's address to file the paperwork from, and we'll be self-sponsoring using savings in order to come back over.
