The sensor is not really subject to ambient light levels because no light can get to it once it is stuck over the LED on the meter.
I solved some of the issues brought up here in a slightly different way because I ran into problems when I actually stuck the TLS261 light sensor over the actual electricty meter LED. The voltage I was seeing when the meter LED flashed was way too small. I thought about amplifying it then I remembered I had a 4N25 optical isolator lying around. I fed the output of the TLS261 via a 150 ohm resitor into the 4N25 and this is enough to light the internal LED then simply wired a 1K resitor between +5v and the 4N25 collector and wired the emitter to ground. I attached digital pin 3 to the collector and interrupt on a falling edge.
Seems to work ok so far. Would post a schematic but I'm new to the suggested expressPCB software and have not got to grips with it yet.
Thank you to all who helped.