I need to get to grade 5 theory, I already play bass and drums but i've been interested in getting an acoustic guitar. Would I be right in thinking that getting into classical guitar would help with my theory? If so can anyone reccoment me a fairly cheap nylon string guitar to get started with?

Don't play just one kind of music...for a cheap classical guitar, Washburn C40 Cadiz is about $140. UG has lots of lessons for beginner guitarists and lessons on theory..Good luck and have fun.
Meh, you can do theory with steel string acoustic or classical. Personally I enjoy the sound of a steel string acoustic more than a classical, but thats just me. The theory however will be the same for both, so its up to you which style of play you enjoy more. Both will help with chord theory, scale theory, and all sorts of fun little tidbits you'll learn along the way.
If i go down the classical route however will I not be using a lot of sheet music rather then tabs? In response to prncessdew I won't just play classical but that is mainly what I'm interested in playing.

Thanks for the help
theory can be found in any type of music. The key is analysing it. Get a theory book and analyse the songs that you know. Then move on to classical. You will find the former to have been a great help.
Michael Ferris