I don’t think distance is a problem in your case. Try the following:
(with the Normally Open checkbox left unchecked)
1. Disconnect the rain sensor wires from the OSPi.
2. OSPi should now read “rain detected”.
3. Replace it with a short piece of wire between the rain sensor terminals.
4. OSPi should now read “rain detected”.
Alternatively you could wait until the next time it rains. When the OSPi fails to clear the rain detected state connect a short piece of wire between the rain sensor terminals. If doing this clears the rain detected option it could be a problem with your wiring or the rain sensor.
A couple more things; Are you sure your rain sensor is normally closed? Most are, but if you have an ohm meter its worth checking. It seems odd to me that in your step #4 you say the OSPi does not detect rain. If it is a normally closed sensor I would expect that the OSPi would say rain detected in this state (Normally Open checkbox checked). Also check the OSPi log file. At the end of a rain event it will show the runtime of the rain sensor (the time the sensor was enabled).