Hi Steve,
Yes, it does matter, for Google at least as far as i know of, you should move your content to U.K. servers, if you really are aiming for the U.K. market then that's a must.
Other search engines like Yahoo doesn't take the IP location to much into account, but i can't 100% stand behind this statement.
It's something i picked up on in various discussions and my strategy is to always use a hosting service to have my site hosted on a IP address located in the country i optimize for, and preferably a domain extension matching towards that country as well.
Which in your case you already have

---------------------------------------
Is there a particular reason for having an url like this in your work in progress site Steve?
1: gogiddy.co.uk/
category/burberry-sale-watches/
I see you have that implemented for all your type of watches.
And when you click on a title of a particular watch you get a URL like this:
2: gogiddy.co.uk/
burberry-sale-watches/burberry-gents-with-black-dial-953/
Which is much better.
And at first glance i couldn't see any reason to drop the "category" folder and use a folder like this:
gogiddy.co.uk/
burberry-sale-watches/
It's what i would have chosen for though, the verbiage
category isn't what you want to rank for and it doesn't mean anything to Google unless you want to rank for the word "category"
Then on the page
burberry-sale-watches you can link out to the various models.
It also looks to me you have created a duplicate content issue here.
gogiddy.co.uk/
burberry-sale-watches/
gogiddy.co.uk/category/
burberry-sale-watches/
Are both the same identical pages to be found on two different locations in your site.
Now Google has to make a decision which one holds more importance and you're better of having one page to get all the juice so to speak.
Because you're making it harder for yourself to rank this way.
2 cents
