UK PhD students are nominally registered for a period of 3 years, but many people have to finish writing up after their 3 years have officially finished. The time reduction (down to three years) is at least partly due to the fact that generally you're set to work on research from day one, rather than taking classes for the bulk of one or two years first (although you may still have to attend some lectures depending on your background and the supervisor's preferences).
If you are planning to pay your tuition and living expenses out of your own pocket rather than obtaining a studentship/scholarship, then you may still have a realistic shot at getting in for September 2008. If not, you may well have missed the boat this year, but it's still worth a try. My experience is that - in practice - you really need your applications in before December for most studentships.
I would also recommend that before you send your application you email potential supervisors and talk to them about how you may be able to work together. When you send in that application, I'd send a copy of it direct to your intended supervisor as well as to wherever it says to send it on the form. A flexible approach to filling in application forms is expected - for example, despite them often asking for a research proposal, it seems customary to write only the vaguest of descriptions: e.g. "Observational astronomy", "Theoretical astrophsyics", "Photonics", etc, unless the project has a specific name which they indicate.
Regards to how difficult it is to get in: your mileage may vary. A potential supervisor at Cambridge decided it was worth interviewing me straight after my less than spectacular undergrad degree on the basis of some other bits and pieces that I'd done. Oxford said I qualified for admission there too, even though my undergrad grades were such that a mid-ranking university rejected me without even an interview. For Oxford and Cambridge, who see so many academically well qualified people, I think a lot must depend on extracurricular activities and how they see your potential.
A master's degree and some work experience certainly helps, as well. This year, having been doing a masters and having had some work experience, I was offered every PhD studentship I applied for. Better undergrad grades would have certainly helped though.
You may also find
www.findaphd.com useful at this stage in the year as some departments put their unfilled PhD places on there.