We all know how great my diagrams are, so here goes...

Am i sitting too close to the piano, how it is shown in the below diagram?

You're really looking very thin nowadays, H_C. You haven't got some sort of eating disorder, have you?

Looks OK to me. Do you feel comfortable? Can you reach either end of the keyboard? Can you move your arms freely without feeling cramped? There is no one correct way to sit that suits everybody. Find a position that works for you and stick with it.

I think that picture makes me look fat.

You have to love the detail of that picture, I included the pedals, music stand, and key-cover.
I also levitate over the stool, which has one of its two legs thicker than the other.

No but your legs are not in proportion!
Sorry, to a serious answer - from where you are sitting you should be able to stand up from the stool with ease, in one movement. That should give you the right distance, and the right sense of being nicely 'planted' at the piano.

(Well that's what I do anyway...)

It's about the distance i would sit, from looking at the diagram. So you have lots of power in your arms. As long as the forearm is straight and you can move freely and don't feel cramped its fine. Alot of people say to sit with an inch of the knee under the piano, but if your tall like me then you might struggle with some pianos and have to adjust accordingly. I'm sure someone will be along to correct me if i'm wrong, although in my opinion, where you sit is your own preference to a certain extent.

Being 6ft, I find it rather difficult to use some pianos, Danemanns and Zimmermanns mainly!

One way to get some idea is to stretch out your two arms in front of you with fists loosely closed.

If your knuckles can just touch the wooden strip behind (ie on the far side from you) the piano keys, that's something like right. If you can't stretch them out more or less straight, you may be sitting a bit too close.

Your arms don't look ideal in the diagram, HC. (That's not really you of course ).
I think the guy in the diagram is sitting a little too tall. His forearms might be better to be nearer parallel with the floor.

It's the same for me, although i have been mainly lucky with most pianos, however when i was looking for a new piano some of the keyboards on them looked really low and i stayed clear of them.

I would sit with my knees slightly under the keyboard, but like PSCB says, it's down to personal preference really.

also I agree with Hils that the two halves of the leg are not in proportion - not a criticism of your diagram as such, HC - but a longer upper leg is more typical - and this could have the effect of siting the knee further forward.

My arms do run parallell, as i said, my diagrams arent the best haha

I personally think that from the diagram you are sitting too far away and too high - your thighs should be near parallel to the floor (obviously everyone is different and might be more comfortable with a slight slant) and your elbows shouldn't be that high from the piano unless you are playing very fast pieces (which you may be doing, I don't know).

My general guideline is: High for fast, low for slow. (the higher your arms, the less control, so low = more control) - this isn't prescriptive, simply a generalised idea of positioning.

In terms of distance, I agree with what maggiemay said, but I'd add that you might be able to gauge it from reaching out towards the piano with your hands flat, with your wrists level with the end of the keys - your torso should be roughly the distance from your wrists to your elbows away from the keyboard.

Having said all that, I must admit that I usually sit too far away from the piano, because I have a tendency to move my body quote alot in my playing.

Don't forget also that whilst it is important to find a sitting position that suits your playing and is comfortable, you should be altering your height and position slightly for each piece, depending on the syle and demands of whatever you are playing.