Does anyone know if there is any difference in the behaviour of the coolant level warning light if its a sensor fault or a sign of head gasket failure (oil in the expansion tank)? (e.g. if the engines hot/cold when its started, etc)

Keep an eye on the coolant level yourself? If there's a warning on the dash, but the coolant level isn't low or dropping, then it could be the sensor at fault like you say. Mayonnaise under the oil filler cap is another way of telling if there are any head gasket problems...

Just my 2ps...

mine used to come on every cold moring (I have to park at an odd angle,nearside higher than offside...) it never needed topping up though in 80k......

Some info on what engine you have would be handy.

Sorry, its a 1.4 mpi.

Then I would suspect a small amount of oil is collecting on the header tank connections inside the bottle itself and blocking the signal.

You need to see if you have a modified Temac headgasket fitted (will either have Temac or a T on the right hand corner of the gasket). If it doesnt then it will need a new gasket.

The reason why I ask is that it only comes on in the morning (i.e. left overnight) and I can't find any other symptoms that would suggest a head gasket failure (e.g. loss of coolant, mayonnaise under the oil cap, smoke on start up, etc)

Is it kept outside at night? With the weather we've been having, I bet there are a few electrical gremlins popping up here and there what with the constant rain making everything absolutely PWT (even if you haven't been unfortunate enough to be properly flooded...)