I am setting up a dev environment on a my local PC, however when deployed the project I am working on will be using SQL Server 2008. Could I install SQL server express 2012 for local testing and not have to convert the older version database(s) for use with it? Which if I recall correctly would then not allow me to use them with SQL server 2008 ?
You can restore a database backup from an older version (say 2008) into a newer one (2012), but you can't go back. You can not restore a backup from 2012 into 2008.
The conversion from the 2008 backup during the restore in 2012 happens automatically and you can not prevent it.
The compatibility level is something else and doesn't help you here.
If you would like to use 2012 as a local dev-database, you need to apply your local changes to the production database in some other way. You could script all your changes manually or use schema or data comparison tools to sync the two databases.
If it's a simple database and not using any services which are only available in say Developer or Enterprise version of Microsoft SQL Server then you can definitely use it in 2012 Express version of SQL Server.
Here's the comparison of what version could do what... http://msdn.microsoft.com/en-us/library/cc645993.aspx