I am seeing similar results when searching in the US: a search that is limited to within a certain radius of a postal code returns results throughout the world, regardless of the number of results found in that area. Sorting by Nearest First indicates there are local results that satisfy the search; it is just that the search is not filtering out any results outside the chosen radius.
Having similar problem. My distance filter has not worked for a week. I purchase large items so they must be near home. At the moment I am getting items from all over Australia. I have contacted eBay with no joy as yet.
