Cold Renault

just been out in my laguna (1.8rt, 8 valve, n reg petrol) and heater doesnt work very well. with the fan on the '1' setting it blows just about hot but if i turn the fan up any more it goes cold. i have just spent 45 mins with the engine ticking over and the temp gauge didnt move off the second large mark (about 1/4 of the way up, the fan never cut in)

there is water in the expansion tank.
there also seems to be a lot of condensation in the car lately. dont know if thats relevant or not

could it be the thermostat? and is it hidden behind 20 other components or is it easy to get at?

any suggestions gratefully received?

cheers
Chris