Is there any restriction at all??

As a visitor or permanent resident? As a visitor, yes (for up to a year). I'm driving around with no problems. Well, apart from dodging roos & emus!

As a PR, I believe that you have to swap to a state licence within a certain period of time. I could be wrong though. Hopefully someone will be along shortly to confirm or correct it.

Once you are resident as PR you have 3 months to switch to an Oz licence

As a visitor or temporary resident you are OK on your UK one.

I am applying for sub class 189. Under this, am I a PR or temp resident?

PR.

Thanks. But if i just hold this but continue to live in the UK, am I still subject to the 3 month window of changing driving license?

Depends on state I think - in Victoria it's 6 months that a permanent resident has.

Only in Tasmania. Most of the other states stipulate three months after arrival.

You're quite right. Victoria allows six months.

It's really useful to get a license straight away as its used as the main form of ID, has your photo and address on like UK.

In south Australia at least, there is no year time restriction for people who don't have pr. You can drive on your uk one for as long as it takes to get pr, and then you have three months to change.
We have been using our uk licences for over 4.5 years.

+1

Thank you!

Your UK license is fine to use if you are on 457 for as long as the visa BUT check how much time you have remaining on it. I carry both around with me.

The time starts from when you arrive in Australia, so obviously if you're still living in the UK it won't apply.

How it works with validation trips, I have no idea as we came out on a temp visa.

In NSW you are able to use your UK license for the whole period you are a Temp Resident, but like another poster said getting a NSW State license does come in handy although you can only get a yearly one whilst Temp Resident. As soon as you go PR, like we just have, then you have 3 months to get a NSW State license.
Bear in mind each state is different for both types of Visa's so make sure you read that State's roads and traffic authority website for details.
You do NOT have to hand your UK license in and if your UK Photo License expires, like mine did in 2010, your paper license is still extant for the period of its validity.
Once your are living in Australia and you no longer have a UK address, provable to the DVA (or whatever name it is today), then you can NOT update your UK Photo License until you return to a home in UK.
I'm a bit confused about your 'continue to live in UK' statement. Are you saying that you will be coming here as a PR but then intend to live in UK or just hold a home in UK, which will be your UK residential address??