Hi
You are correct that projections and also coordinate systems are at
the root of your problem.
Two useful resources to understand the background a little better are:
Google Earth projections -
http://earth.google.com/userguide/v4/ug_importdata.html
which explains a bit about GE's use of projections - the facts are
that GE uses the WGS84 datum and lat/lon coordinates and a cylindrical
projection for its imagery base
UK Ordnance Survey grids -
http://www.ordnancesurvey.co.uk/oswebsite/gps/docs/A_Guide_to_Coordinate_Systems_in_Great_Britain.pdf
- this explains that UK OS uses the OSGB36 datum and lat/lon
coordinates and a UK specific Transverse Mercator projection and
coordinates for the familiar 1:500000 mapping. These UK specific
coordinates are the familar OS 6 figure grid references - eg SU734331.
So what looks like a circle in UK OS grid referenced coordinates will
not look like a circle in Google Earth because the projection is
different (transverse Mercator vs cylindrical) and the assumed shape
of the earth differs (WGS84 vs OSGB36 causing lat/lon values to be
different).
You have some choices. Convert your OS coordinates to WGS84 lat/lon
and your "circle" in OS coordinates will be correctly represented on
the Google Earth imagery - probably what you are doing now but it will
be distorted. Or redraw a "circle" as a Google Earth placemark with
the same centre and radius. This circle will look good on Google Earth
but it will not be the same "circle" you had in OS coordinates.
This thread
http://groups.google.com/group/google-earth-browser-plugin/browse_thread/thread/7d6c2895b590d4c5/b23abf824e3bfe36?lnk=gst&q=circle+polygon#b23abf824e3bfe36
gives some really useful informationon drawing circles in Google
Earth.
Hope all this helps
Andy