You can add the following lines to your configuration file to disable magic quotes:
magic_quotes_gpc = Off
magic_quotes_runtime = Off
Regarding the location of the php5.ini file, you will have to ask GoDaddy. It is not a common configuration to place such configuration files in the same place as your website files, so they have configured their servers in such a way to look for it. We can assume that the appropriate location is the top-level directory that holds your website files, but asking GoDaddy is the only way to know for sure.