My iPhone (4 8GB) is showing i have around 1.2GB of space, yet on iTunes, I'm being told i have 856 MB, Can anyone explain this to me please?

So yeah, I went to transfer some songs just now, and I checked on my iTunes to see what memory I have. According to iTunes I have 856 MB, yet the iPhone itself is saying i have 1.2GB. Who do I believe?
And yes - I am pretty hard done by on storage, I'm pretty minimal with my apps. It's rubbish

There's a whole lot to read in your post, and frankly I have not read it all.
Having said that, this troubleshooting guide should help:
http://support.apple.com/kb/TS1538
In particular, pay attention to the mobile device support sections near the bottom, assuming you have already done the items above it.

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