Once your 1 year driving licence has expired and you apply for a 5 year licence , do you have to retake the driving test and do you have to return to the transport office where you obtained your 1 year licence or can you go to the Transport office in the new province you live in?

You dont need to retake your test..

I would guess you need to be in either BKK or the province you address is in (as shown by your proof of residence by immigration or embassy). Thats purely a guess tho as I went back to the same local one so none issue for me.

You don't need to retake any tests.

You will need new photographs, passport with valid Non-Immigrant visa (photocopies of information and visa pages) and either a work permit or letter of residency from your Embassy for renewal. You'll also need your old licence (it must have expired by one day) and the fee.

I was told back in January at the Sukhumvit 99 office when I renewed that a letter from Immigration is no longer accepted as proof of address.

You must go to the office that covers the area where you live according to your work permit or letter of residency.

it must have expired by one day or more I hope as my licence will have expired by 2 months when I return!