Outdoorsman: Sounds like you are on the right track since the water drops to the level of the hole. The dye idea might get some results, though the dye might just get filtered out in the dirt, but worth a try... I would put the dye in the hole as much as you can and try and run a garden hose to the hole and try and use it to flush the dye.... it may take an hour or a day or two to show up.
In any case , I would dig back the hole with a back hoe if you can, and back fill it with a clay and bentonite mixture, packing it in as you go. I would rerun the dye before you dig so that you might be able to track the hole as you dig down. You might have to let the water get a little lower or pump out a little or build a secondary dam aroung the hole so the existing pond water doesn't cause you to make a big mud hole. You would need to keep that area somewhat dry to work the area.
If you can not get a backhoe to the area, then I would try and dig down to the hole from above and try and get as much bentonite into the whole as possible. You might help it seep into the cracks with a little water added a little at a time. This may take more than once to help but it seems like something reasonably cheap to try.
Good luck
