Thats no problem Steve - as your boiler heats up the water for domestic use, warm water expands up the pipework and slightly increases the level in the expansion tank, and as it cools down again, the level falls. Thats why the water level in the small tank is usually set to around 6" depth - just enough to cover the expansion and contraction. If for some reason the boiler overheats, then very hot water is shot up the expansion pipe - thats the one that curves over the top of the tank, and splashes into the water already in the tank. In your case, I think that the water level in the tank is simply too high, as its now running out of the overflow pipe, due to the ball valve letting some fresh water to pass. These valves can be rewashered, but I generally fit new ones because they get very little use in normal life.
John
July 2009