I can't remember WHICH of the hoses, but I hear that is important.  Chech the thread linked to above - I'm sure it was mentioned there.  As for the location, my '81 comes from the factory with an AUTOMATIC cutoff valve that mounts down low on the back side of the passenger side fender well.  For whatever reason, it wasn't doing its job.  Anyway, I just removed the automatic valve and replaced it with a cheap MANUAL one, in the same location in the hose.  It's also down low where it doesn't show that easily from the top.

I know each model year is different, but my experience mimics that of ammo6.  I put a manual cutoff valve in my heater hose and that solved ALL of my cockpit heat problems.   That may be all you need to do.

how did you guys determine or test the heater valve was not working

and where is it located

I didn't test.  It seems there are only a small number of likely sources of heat in the cockpit: the cut-off valve (which I think earlier C-3s didn't even have!), leaks around the blower motor/duct in the engine compartment, catalytic converter, sidepipes. I don't have the last two and the car is in great shape ond only an '81, so I didn't expect that the seals around the blower ductwork were bad.  So, I just invested the $15 and it happened to solve my problem.