What passport???

Linzi, You should find out what British government agency handles questions like this. Perhaps, go to Great Britain, tourism as a computer search. That's the strategy we use. You won't get "the official" word here, and that's what you need. You might get opinions and responses based on what individuals think, but you need the true word from the British government.

You also need to check with US immigration. I understood that there is a point in the process of applying for US citizenship that you are not allowed to leave the US or you have to restart the process. This might not apply in your case, but you need to check with them to be sure.

Agree with the others, your questions really need to be answered by either the British Embasy or the US State Department - or both.

Yes, you absolutely need to check with official authorities in both the US and the UK - which no one on this board is. Many countries require that, if you hold a passport of that country, you use that country's passport upon entry. And it is common that leaving a country without doing it exactly "right" can make it hard to reenter. Yes, this does make things complicated (I know a dual national Brazilian-US woman, who explained that on the plane between New York and Rio she has to be careful to "shuffle" her passports correctly, as she has to enter and leave Brazil on her Brazilian passport, and enter and leave the US on her US passport. Each country gets very hot and bothered if she deviates from this). So, since your situation is complicated, you must make sure you are doing the right thing - as defined by the countries in question, not by me or anyone else here.

As an opinion only, I'd go with the British passport and keep your peramanent resident card handy for when you return to the US. What's the use in having a British passport if you can't use it to avoid getting a visa to vist Britain? When you return you may have to do the ESTA ("visa light"), I'm not sure if you can avoid it when traveling on a British passport. As long as you pick one passport and stick with it for your trip, you shouldn't have too much trouble.

Thank you to everyone who posted a reply. :). I did in fact follow your suggestions and contact the UK government via dept and was told that as I am just going to the UK for a vacation to simply travel on my Australian passport for the entire trip. A visa isn't required for Australian passports and as I carry around my permanent residency card all the time anyway I won't have any problems leaving or returning to the US. :)
Always good to know the facts rather than be denied entry to the UK a d re-entry to the US :)

My prophecy has come true.

Entry to the UK requires documentation presented be valid for the purpose of the trip. It doesn't matter what that is and there is no obligation on a holder to use a British passport over anything else that is valid. However, a British passport would permit use of the EU immigration queue.

So, you're a dual citizen of Britain and Australia, with a residency permit in the US? If you have been living in the states, then this shouldn't be an issue. When you head to the UK, use your British passport and assert your right as a citizen to enter the country. When you head back to the US, show your greencard and whatever passport you used when applying for it (it doesn't matter that you use a different one out and in) and come back to the US as is your right as a resident. If you plan to be abroad for more than a year, that is a separate issue. http://www.uscis.gov/portal/site/uscis/menuitem.eb1d4c2a3e5b9ac89243c6a7543f6d1a/?vgnextoid=0c353a4107083210VgnVCM100000082ca60aRCRD&vgnextchannel=0c353a4107083210VgnVCM100000082ca60aRCRD

Folks - the OP, Linzi, has gotten the answer she needed directly from the British authorities. She had a VERY specific set of conditions and questions that almost all of us advised her to get answered by an immigration/State Department official. Please do not guess at a response on this, it is not helpful.