Just had this problem with my Ideal Standard today - lifting the arm did not stop the water entering the cistern. Here's what I found.
My inlet assembly has the inlet valve and arm on top of a plastic pipe that extends all the way down to the bottom of the cistern and the external water inlet. This plastic pipe is actually in two parts, with a plastic ring around the junction. It turned out the water was leaking into the cistern from between these two parts.
To fix, lift the plastic ring upward along the pipe (it will take a bit of a tug to make it click loose). This will unlock the two parts of the pipe from each other. Ensure all the washers inside are sound. Put the pipes back together - ensuring the top pipe is firmly seated in the bottom - and click the ring back down to lock.
This fixed the problem for me. I guess I had accidentally banged the inlet pipe (while repairing the outlet valve) just hard enough to unseat the top pipe.
For the original question - the valve is located at the very top of the inlet pipe, connected to the arm. If a leaky valve is the problem, water will be leaking from the top of the inlet pipe rather than the halfway point.
Coops
March 2010