The water bond and using the water pipe as a grounding electrode are two different issues. If your able to use the water pipe as a grounding electrode, then yes the connection is required to be within 5ft of where it enters the building and it must be supplemented with at least one additional ground rod. The 5 ft rule is good practice even if the cold water is not used as a gronding electrode. This way if a water pipe is cut or removed you do not lose your water bond and possibly grounding electrode.
#84524 - 04/11/0311:39 AMRe: service grounding/bonding
As spyder said the ground rod and the water pipe are seperate issues. There is no requirement on where you locate the ground rod as long as it is installed correctly wired correctly and in a suitable location. It could be by the panel and usually is around here. Where the water pipe comes in is a different subject.
#84525 - 04/14/0310:11 AMRe: service grounding/bonding