yeah I feel stupid

When standing near a character who can speak (you will see a special icon), press left CTRL or click on left mouse.
If the person is seated, you must stand precisely in front of him. You can exit the dialogue by pushing ESC key.

i feel like ive gone mad, i can jump and do other context sensitive things with the lmb and ctrl, but it wont talk to npcs? even if i get right up to them? i could before the patch?

*I'm smart I swear!*

With the latest patch 1.1.3.18756, I have the same issue. Can't talk to anyone, using ctrl or LMB. The talk icon appears and on pressing the buttion, the view switches to a closeup of the characters, but the talk sequence doesn't start.

It was working fine before the patch.

It depends on which controls you are using. If you're walking with wasd, the action button for some things (like talking) is e.

Oh man you just made my week! how did i miss that?! XD

Yea, if the standard keyboard/mouse control then you should see a head with lines out its mouth in the upper left corner when you get close to a character, then hit E.