I've tried to make my brakes a bit sharper while shortening the hose, so afer shortening and putting the new needle thing in and then that brass round thing on and reconnecting the hose, I took the wheel and pads out and pulled the lever so the pistons came out further than normal (there was a small bubble popping from behind one of the pistons when I did this).

I then topped up the reservoir and put everything back in place only to find that the lever now comes to the bar!!

What have I done wrong?

you need to bleed your brake

Try bleeding from the caliper up to the lever using a syringe, sounds like you have air in there somewhere.
It can take a few goes, so perhaps try bleeding it again? You have bled it havent you?

Bubble from piston =whoops.

Take brake off bike, have caliper near floor level and lever as high as poss so hose is vertical and cap is horizobtal, keep bleeding until no air comes out then bleed some more. Then tap the caliper and hose alot with handle of screwdriver to unlodge stubborn little bubbles, then bleed again.