Guys, I'm not from England so I don't know much about how this works.

I know that Oxford and Cambridge are some of the top universities in the country and that they are in very "university" -oriented towns. And most jobs are in London. My question is wouldn't it be better to do an MBA in London than at Oxford or Cambridge, even though these are very well respected schools?

No, Oxford and Cambridge are just an hour from the centre of London (England is tiny) and employers go there to get world class talent. Other than London Business School, there is nowhere better to study for an MBA in the UK than Oxford or Cambridge.

You can just get on a train to go to networking events, meetings, etc. It's not usually a problem. I know people who even commute between Oxford or Cambridge and London - depending on where you work, it's completely doable.