Arduino regulator gets untouchably hot when powering the Ethernet shield

I needed my project to fit into a very restricted space so I have separated the Ethernet shield from the Arduino board and ran wires for the icsp header, Vin, GND, 5V. My project is powered using the ethernet shields POE module so the intention is for the 9V POE output (Vin pin on ethernet shield) to power the arduino board (connected to the Vin pin on the arduino). The 5V output from the arduino then powering the ethernet shield via its 5V pin; as would normally happen if the shield was stacked.

The issue comes when this is all connected, the regulator on the Arduino becomes untouchably hot and I seem to measure 700mA of current being drawn from the Ethernet shield, although I don't understand how this is possible! Perhaps I have blown something in the dismantling of the Ethernet shield?

Has anyone an idea what could be wrong?

#edit: perhaps I should move this to the networking forum, its a bit of a crossover topic but I'm guessing its predominantly a power issue...

You might consider using a UBEC like below instead of the arduino onboard regulator.

http://www.ebay.com/itm/Hot-4-A-Lipo-Battery-Motor-Speed-Controller-UBEC-RC-Helicopter-4A-50A-2S-/140922261705?pt=LH_DefaultDomain_0&hash=item20cf9f10c9

The W5100 based Ethernet Shield is current hungry. The voltage regulator on the Arduino board and the W5100 itself get hot.
You could use 7V for the Arduino board, the heat generated by the voltage regulator would be half of what you have now.
Or use a DC/DC converter for the Ethernet shield, as zoomkat suggested.

The W5100 should take about 180mA I think - 700mA is way beyond that.

A DC/DC converter is an interesting idea but I am concious that something isn't right if it is drawing this much current. I was expecting more like 180mA as MarkT suggests. I'm also fairly certain this didn't occur when I was originally stacking the shield in the conventional way. Is there something that could have been damaged that would cause this kind of malfunction?

I bought a replacement ethernet shield which is only drawing 180mA as expected. However the Arduino regulator still heats up very quickly, perhaps in this case it is a feature.

Yes it is.
If you don't want the regulator getting hot, use a DC/DC converter to make 7V and use that for the Arduino.
I have also read that someone placed a heatsink on the W5100, but I don't know how to attach that.

Do you know what is wrong with the 700mA board ?