I couldn't find the link that I was thinking of but you might get some ideas from the links from here:http://www.arduino.cc/cgi-bin/yabb2/YaBB.pl?num=1227124357/0
In one of these links: monitoring the last rolling number pic on www.bwired.nl
another thought is that you could use a piezo to monitor - and if the water never shuts off you know that you have an issue.http://www.instructables.com/id/Low-Cost-Water-Flow-Sensor-and-Ambient-Display/
my last thought is to use optical mouse parts - http://www.arduino.cc/cgi-bin/yabb2/YaBB.pl?num=1285558848/1
were someone posted this link: http://spritesmods.com/?art=mouseeye
you might be able to figure out where the needle is or when a needle enters/leaves the mouseeye...