Yep. Been there :(
I did the same thing with my 1st son- started laying down with him until he fell asleep. Same result. I couldn't figure out what to do either until I saw an episode of The SuperNanny where she was helping a family with the same problem. This is what she did- and then I did:
I would sit in my son's room, near his bed, but so he could only see the side of my face. I made no eye contact and no conversation. It took him a little time to catch on that I wasn't going to be interacting with him, but then he accepted it and was just happy to have me there. Every night (sometimes 2) I would sit a little farther away from his bed. Eventually I was in the hall, but he could see me. The next step was I was in the hall, but just out of eye sight (he knew I was there though). Then I was in my room which was nearby and at least I could do something like read or even put my laundry away. He never got to the point where he could be alone upstairs at night, but I was just happy that he was falling asleep on his own, and he learned to do it without all the crying- him or me :) Of course, as soon as he fell asleep, I would go downstairs. It took a week or maybe even 2- this was 8 years ago, I think.
BTW, if he gets out of bed when you're in the hall stage (or later), say gently, "bed time dear" and lead him back to bed. The next time, say nothing- just lead him back to bed. Don't be discouraged if you have to do this over and over at first- he'll stop eventually and go to sleep when he starts to realize he's getting nothing out of it- no attention, no water, no mom coming back in and snuggling.
Also, a pre-bedtime routine that is always the same is very helpful. Kids like knowing what's coming next, and it gives them time to mentally prepare themselves that bedtime is coming.
Good luck, I know it's hard- just hang in there and be persistant. It'll eventually be just a memory.....that you'll want to share w/ everyone going through the same thing ;)