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		stinky,
oil light comes on when oil switch/sender cannot detect enough oil pressure in engine.  reasons for not developing enough pressure:
insufficient oil in sump causing pump to pick up air, pump is not able to pressurise air;
Pump is worn and not able to pressurise oil, or; (like trying to blow up a ballon when your lips don't seal properly, difficult to build up pressure)
engine bearings on crankshaft are too worn therefore not offering enough restriction to oil and pump can't keep up with the volume of oil required to build up pressure (i.e., oil is leaking out the bearings without much resistance due to the sloppy fit due to ware) (like blowing up a ballon with a hole in it, difficult to build up pressure)
Spinning the engine faster (off idle) spins the pump faster therfore increasing the volume pumped, if the volume pumped excedes how much is leaking out the bearings then the pump might have a chance of building up pressure.
Dave suggestted that instead of replacing the switch or as well as replacing the switch you install an oil pressure sensor to connect to a pressure gauge.  That way you will be able to establish how much pressure your pump is developing under different engine speeds (quantitative mesurement instead of light on or off).  This will hopefully indicate if you need to service your pump or if you need to overhaul your engine.
The need to overhaul your engine will be termined by a few other messurements as well like cylinder pressures (compression) and leak down tests, etc. Other tests to determine if overhaul is required will involve pulling down your engine to measure some components for wear. 
How many kms your engine has done and how good a service history the engine has has will be pretty good indicators of the need for an engine overhaul.
Hope this clears up the questions you still have.
(Mechanics please correct as required)
	 
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		hmmm.. 
rightio, well the sensor is clean and fixed solidly. ... one thing i noticed when i start the car with the sensor disconected the red light doesnt show at all, even when ignition is on.... this is the same for when the car is running and its disconnected. When the sensor is connected it acts as normal,
i havnt taken it for a drive since cleaning it though. but im curious how i get a pressure sensor to test it? can i do it myself?
(sorry im a bit of a newb when it comes to this kind of stuff)
	 
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		As I am not a mechanic I can't tell you for sure, but I expect that mechs might have a gauge they can hook up temporarily.  The gauges I know about are the type that you place on the dash with a sender that taps into the oil circuit/pipes/internal galleries.  Old gauges use a capillary tube to physically sample/feed the pressure to the gauge.  New gauges use a sender that sends an electrical signal to a gauge that then displays a pressure value on the gauge/dial.
	 
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		that oil pressure switch is on or off.
when the ignition is on and the engine is stopped there will be no oil pressure (well less than say 8psi which is an average turn off point for them) so the light will come on as the switch is closed.
when you start the engine the light will go off because the oil pressure has risen and turned the switch off.
if you have an intermittant contact or remove the wire the light will generally stay off.
IF you have a failed switch that has allowed oil to bypass internally it will not turn off or will require more pressure to turn off so it may indicate that you have no oil pressure when really you do.
changing the oil sensor is easy, usually you can get it with a shifter, correct ring spanner or socket. head down to supercheap, repco, landy dealer or anywhere else that sells auto stuff and tell them the year model and type of vehicle and they can generally look up your vehicle and sell you the appropriate sender.
I still think it is worth your while to head down to a mechanics (almost any will do so long as its not your average K mart type place) and get them to hook up (at least temporarily) an actual guage and see what the oil pressure is while the engine is hot and at idle.
	 
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		hey, Ive cleaned the sensor spade, used wd40... there was alot of oil and dirt in it, im going to get thr pressure in the engine tested next week, although since cleaning the sensor it hasnt happened again.
to be on the safe side im also thinking of replacing the switch with a brand newy...
another thought i had could be running 20w oil rather than 15w that im using now.
I normally use Penrite 15w40 but at the moment ive got in it gulf western 15w40. i personally think it looks a bit mear as an oil.. i can see the dipstick through it, while the penrite is as black as black can be!
anything else?