Well, Martin (funny, my name's Martin too...), you're probably going to get as many answers to your questions as there are people on the board. Here's my contribution, according to my own experience.
1) Tokyoites are not any more or any less fluent in English, than people in other parts of Japan. So brace yourself for communication mishaps. One thing you have to grant Tokyoites (and Japanese in general), though, is that they are going to try their darnedest to make you understand in broken English what they want you to understand.
As an extreme example, last Thrusday a group of foreigners (caucasian English speakers, don't know what nationality) tried to transfer from the line I usually take to a different line (owned by a different railroad company) through the gate used exclusively for common ticket and pass holders. Try as they may, the gate just wouldn't let them through, until a station master showed up and curtly said "JR only" (which was his way to say "you cannot get out here because you are not holding a JR (Japan Railways) ticket, therefore you have to go out, by said ticket and come back through the main entrance", but to him it was appropriate. Bemused, the group of foreigners finally caught on...
You can expect this to happen to you at least once. Tourist bureaus and hotels may be a bit better, but don't hold your breath. Yet, there are some very fluent people out there--you just don't meet that many.
2) Estimate a two-week stay? It's near impossible to say without knowing more about what you plan to do. One thing, though, if I were you, I wouldn't plan on spending my whole two weeks in Tokyo as it's not the most interesting place in the world (well, if you're into huge sprawling metropolises and what they usually offer, then you're in for a treat; if not, you should consider another Japanese city as your base of operations) Tokyo is also VERY expensive, second only to Osaka (as far as I know).
There are all kinds of accomodations in Tokyo--hotels (4-star to no star), love hotels (can be handy if you're in a fix), business hotels (to me, a nice in between if you're not worried about space), ryokan (Japanese-style small hotels), minshuku (Japanese-style B&B), youth hostels (I don't recommend them), gaijin houses... If you pick up a Let's go guide or a Lonely Plante guide, they usually explain the differences in accomodation style and prices.
3) Again, it depends what level you're aiming for. It's always safer to book your accomodations ahead of time (especially in Tokyo), but some if not most of the smaller places (hostels, minshukus, and business hotels--forget about love hotels...) don't handle international reservations, which means you'd have to go through a travel agency to book your accomodations for you, which in turn will make it more expensive.
If I were you, what I'd do would be to arm myself with a good budget travel guide, make arrangements to spend my first night in Japan in a more expensive hotel (the kind of hotel you can book yourself or through your travel agent; close to the airport, maybe), then spend the flight time and the first few hours in Japan planning on where to go (of course, you can do that ahead of time too), what kind of accomodations are available and begin making phone calls the minute I check in my room.
I don't know what the yen is worth against the pound at the moment, but Japan is an expensive country to travel. I've been living here for 5 years and I find it's not as expensive to live in as it is to travel in. The key is a good budget travel guide, like the Lonely Planet, I think.
Hope this helps clear things up a bit and that others will have interesting feedback for you.
