Best approach to resolve Rent Arrears

Possession - Section 8 and Section 21

I have a joint AST started 16th Dec 2006, initially for 6months. It lapsed to a Periodic Tenancy and I have never reviewed rent.
Rent arrears started over 18months ago and communication has been difficult (not responding to messages).
I served a Section 21(4)(A) last year, 14th Sept 2008 to expire after 15th. Nov. 2008
Rent is £570PCM and they are now £1,150 in Rent arrears.
My conclusion is to pursue Court Action Via Accelerated Process using form N5b rather than via Sect 8 Notice.
I plan to give them a friendly letter requesting payment or an acceptable payment plan within 7 Days, else I will start above court action pointing out the potential implications. Hoping this will inspire them, thereby avoiding Court Action. Having obtained possession, I would then consider Small Claims court for Rent arrears, I assume if successful they would both receive a CCJ (a useful inspiration).
Questions
1) Will my letter, in any way violate anything Legally?
2) Their deposit is not protected (Pre April 2007). Can you confirm this is Legally OK?
3) Is this the best commercial approach or would Sect 8 Notice be best? If so what advantage(s) would this provide?