I think I follow you now. I suggest using a float switch in the pond set to turn the pump off at the 'low' level, and a float switch at the municipal output set to turn the pump off at the 'high' level, and a third override switch to turn the pump off when heavy rain is not expected. You could control this override switch manually. If you can tolerate a wired solution then you can get this working without any electronicsw at all - just the three switches wired in series with the pump.
Thanks @PeterH I looked around for float switches and this may work, however as I'm in the Arduino forum I just want to use the Arduinos for it's geek factor and am wondering if I can use something like infrared. This looks pretty interesting to me
http://howmuchsnow.com/waterlevel/ the fact that I can actually capture measurements may lead to interesting applications later on.
If you come up with a weather prediction system you're willing to trust, I expect it would run on the PC. You could replace the manual override switch with a relay (power switch tail, X10 outlet etc) controlled from the PC via an Arduino. If the weather prediction system seems to work, you might choose to turn the whole system off manually during seasons where you think heavy rain is unlikely and want to avoid dumping your precious irrigation water due to a forecasting error.
I may not have to use a PC, I see there are two methods of using an Arduino for predicting the weather. One is getting data through the internet and another is by using a barometer. Either of these should work. However if I use the internet method, firstly I will have access to a pool of data from professional weather providers and secondly I can send the water level to web server which I can store or graph. This is quite tempting.