Before I moved to where I am now and built my own pond, I lived on a shared lake with 16 other houses. We had the same problem with muskrats eating away at our dam. I first planned on trapping them, but the other homeowners thought that would be cruel and could trap someone's dog. (If you've seen a muskrat trap, that is not really possible) My current method, using a 7mm Magnum and picking them off was also not acceptable in a populated area.
We ended up bringing out an expert from some government department that specializes in soil erosion and conservation. The first thing he did was to flush a different colored dye down everyone's toilet to see if anyone was polluting the lake. Sure enough, two of my neighbors were given 10 days to repair their septic systems or move out of their house until the problem was corrected (talk about harsh!). The second thing he did was to have this drilling rig come out and drill holes about every 3 or 4 feet all the way across our dam and inject Bentonite (sp?).
Apparently not only was our dam leaking, but it was actually moving. By going off of survey markings, their corp of engineers concluded that our dam had actually moved about 6" outwards over the last 40 years. Anyway, this Bentonite stuff, i'm told there are several varities of it, pretty well turned the dirt in our dam practically into concrete. All of the leaks stopped and the guys with the survey equipment came back every 6 months or so for a couple of years and they seemed satisfied that our dam quit moving.
All of the houses on the lake shared in the expense of this fix and the state provided much of the work for us to maintain the water ecology or something. Anyway, after they were gone, we dug up the top of one of their drillings and checked out their bentonite stuff. It looked like dirt, but you couldn't hardly drive a nail into it. I only lived there another couple of years, but it did fix the problem. Oh yeah, I got a kick out of it when the state guy told us that we ought to trap those muskrats out of the lake! Where I live now, I have those irritating things boring into my island causing big sink holes around the edges. I need to check the sites on my 7mm mag anyway. /forums/images/graemlins/grin.gif