Wow a great set of replies... now I'm going to have to go off and figure out what you guys are talking about!
Eric, your clarification regarding the input single is spot on. I started with
Ed Cheung's Water Meter Monitor and am using the newer version of the sensor from Vernier, but they dont have much detail on it. Just as in Ed's circuit, I have connected it through a 4.7k resistor. The cable from the sensor is unshielded and about 15ft long (three conductor, +5v, ground, and signal). The PSU is from an old PowerAce (oddly just like the one in Ed's pictures). The final version will have about a 3ft cable but for now I needed to get the signal to a place where I could work with it.
Regarding decoupling caps, I have a few scattered haphazardly about the board. I didnt put them in the simulation because I wasnt sure where they should go, and the simulation worked fine without them (hey I'm a software guy, what can I say). Advice on where to put them would be helpful.
This picture shows about how I expect the circuit to operate. The spikes on Ch5 (the output) are what I dont expect. On occasion, the noise is high enough to span the setpoints, but that doesnt seem to explain these. Also note that 0hz is a valid signal. It just means that no water is flowing at all so there there should be no changes in the output at this time.