We don't have much information on what type of valve it is or the location of the valve.
I would assume the valve is somewhere buried within the dam to prevent freezing, but we do not know that.
Assuming the valve is buried in the middle of the dam and has a control rod to the surface to operate it, my first course of action would be to open the valve wide open and let some water through. Then close the valve and see if it seals. It could be just something under the valve seat during installation and needs flushed out. But again, we do not know the type of valve (gate, ball, conventional screw and seat, etc) nor its location within the 400 feet of pipe.
Capping it on the inside at the inlet would eliminate all potential pipe and valve problems other than a bad joint connection within the first couple of pipe joints (water might seep around the pipe and into a bad joint but only anything before the valve). But the cap would 1. require a diver to install and 2.essentially make the drain ineffective till it was removed.
I like the idea of the inflatable plug, again depending on where the valve is. If the valve is the problem, this should fix the leak problem. At least for many years till the rubber inflatable plug rotted out.
We need more information to properly access the situation.
