It sounds like you probably want to be fairly close to the centre of town. So that you can work/party late into the evening.
If you look at a map, you will see London encircled by the M25 motorway. Inside that is another ring formed by the A406 North Circular Road and the A205 South Circular road. You probably want to be inside or close to this inner ring - or if you look at a public transport map, somewhere in zones 1-4.
The hour commute I mentioned was by tube from my nearest station, Uxbridge (Metropoliton Line, Zone 6) to the centre. You can drive it in less than 30 minutes except during rush hour. The only real (affordable) way to get around in Central London is to use the tube, regular users complain about it a lot, but they still use it because there's nothing better.
It's certainly going to be very expensive by Australian standards. The figure you quoted, equates to about 600 pounds a month. About 8 years ago we rented a tiny two-bed place in East Ham for that money. It's probably more expensive now, and it's not a nice area (although we never had any problems).
Places I wouldn't want to stay include: Brixton, Clapham, Bethnal Green, Forest Gate, Finsbury Park.
Places I know to be OK are: Chiswick, Kew, Acton, Ealing, Wembley (predominantly indian), Golders Green (predominantly Jewish), West Hampstead.
I'm not a Londoner and therefore not an expert on the place, please don't take what I say as gospel.
This website may be usefull to you:
http://www.intolondon.com/findby_map
Phil.
That's a definate on meeting up - even better if you can make it to our 2004 meet.