I managed to fix it so I am posting some details here in case someone else finds them useful.
The sensor is like a half round plastic clip which you can pull off. Once removed, you will see a black plastic rod with (about size 17) nut on the left side. Undo it and you will find a small water wheel attached to a small shaft with a magent disc on the other end. This water wheel sometimes gets stuck due to dirt. Clean it, put it back together, tighten it back, clip on the sensor and everything works.
The reason the boiler was not reacting to open hot water tap is because when you open the hot water tap, water flows through making the small water wheel turn which has a magnet disc attached to the other end. Once the magnetic disc starts rotating, the signal is picked up by the DHW sensor and it tells the boiler that hot water is needed.
Read more: http://www.diynot.com/forums/viewtopic.php?t=180847#ixzz2EKDbdFjs
Ashman, December 2012