Are you suggesting I use a 4051 and loop through all the sensor readings?
Yes I think it will be the simplest option. You can cascade 4051s to get as many inputs as you like therefore you will need one 4051 for every 8 sensors.
Would these be suitable or fast enough to switch
Yes providing you are getting a good signal from the IR sensors. There is an associated serial resistance with the path through this device, this is different for different manufacturers so check the data sheet.
To my understanding, all I need to control these are 3 pins on the 4051s
The 3 pins select which one of the 8 wires is connected to the one wire. You can't say input and output because the is bidirectional it is just like a multiway switch controlled by the 3 select lines.
If I were to not use it as an input and rather an output, how would I do it?
See above the input is the output.
I havnt been able to find many 4067s are there any other 16 channel multiplexers that are similar
No in simple electronics like this the package size is the thing that determines the cost. As it is easy to use two 4051s these are mainly used in place of bigger multiplexers because of cost.
So far I have been talking about just expanding the inputs with a 4051.
You asked about a matrix, this is a bit more unusual. In fact I have never made a matrix of sensors.
If I have 3 4067s for a 8x12 matrix of LED's and 1 row of 12 photodiodes and 4 blank inputs reading on 1 input to the arduino,
Sorry I don't understand this, can you draw something. Look at http://www.thebox.myzen.co.uk/Workshop/LED_Matrix.html
to see how a matrix should be wired.
I have drawn up what I would try if I were to make a matrix of sensors but this is only my starting point and I must stress I have not made such a device so I don't know if it will work. It is attached.
You are a legend, thankyou
I am getting real close to understanding what to do now
This is the part I will be using, http://jaycar.com.au/productView.asp?ID=ZC4051&form=CAT2&SUBCATID=972#1
its a 4051 and I have drawn up a diagram to show an example of what I understand I can do with these
To use this example, if I am correct, I would iterate through the inputs of the of the photodiodes that are connected to a 4051 to get the values which will be at A0, then to turn on my normal LED's, I will select the pins on the 4051 to turn on using the pins 1,2,3 and 5,6,7 on the arduino, then they will allow for the current to flow through the pins from 4 to 8. Allowing for 64 LEDs and 2 less pins used on the arduino than before.
P.S: Red means output and blue means input on arduino in diagram
Is this what you mean I should do?