Thanks for the tips. I did successfully create the polyline feature from the polygon.
I started running the IDW with barriers interpolation, and it has been running for about a day and a half. Is it normal for the analysis to be taking this long? or has something gone terribly wrong? My computer is not that sluggish either (AMD 4 core, 3.5MHz processor and 8gb RAM).
Just to reiterate what I am trying to do: I want to create a surface from a series of data points representing average summer temperatures. However, my area of interest includes coastline and several islands. I have attached below an image showing the area, with the points coloured by their values, and the outline showing the polyline feature I am trying to use in the barriers field. I created this image in Quantum GIS, as I only have one license for arcGIS, which is why it looks awkward (I dont know how to use Quantum GIS.
Thanks again,
Patrick