The SAAB 340B aircraft was conducting a regular public transport flight from Wagga to Sydney via the Bindook VOR navigation aid. The crew had been told by ATC to expect an OAKDALE 2 arrival into Sydney. Approaching Bindook the SAAB was instructed by ATC to enter the holding pattern at FL170. The captain removed his headset to advise the passengers on the public address (PA) system of the delay, whilst the first officer handled the aircraft. Shortly after, as the captain was addressing the passengers, ATC cancelled the holding, and instructed the SAAB to turn onto a heading of 180 degrees, on descent to FL160. The first officer acknowledged the cancellation of the holding, and the descent clearance, but did not readback the assigned heading. When the captain had completed the PA announcement the first officer advised him that they had been cleared to leave the holding pattern and track direct to the Bindook VOR for an OAKDALE 2 arrival. The captain was unaware that the aircraft had been assigned a heading. ATC noticed the SAAB turning left through its assigned heading and queried the crew, reiterating the required heading of 180. As the SAAB turned right to 180 degrees, the separation between the SAAB and a British Aerospace 146 (BAe 146) was reduced to 3.5 NM laterally and 500 ft vertically. The SAAB passed behind the BAe 146 as ATC issued instructions to the aircraft to increase their vertical separation. The minimum required separation standard was 5 NM horizontal, or 1,000 ft vertical. The expectation of an OAKDALE 2 arrival may have caused the SAAB's first officer to anticipate a standard intercept from the Bindook aid. This error could have been averted if ATC had queried the lack of the assigned heading readback by the first officer, and if the captain's attention had not been diverted by making a PA announcement. The captain reported that PA announcements are usually made at the commencement of holding, to minimise any conflict with normal ATC communications. However, he had not anticipated that the holding would be cancelled so quickly, and consequently had not heard the ATC instructions.