Yes, 'save settings' is on in OBSE/OblivionReloaded.ini. Turning on all reflection types in Oblivion.ini had no effect. Re-installing VMWare Tools had no effect. Installing the DirectX9 June 2010 redistributable had no effect. Altering the grid load sizes has no effect. Changing UseWaterDisplacement has no effect.
If I turn the sky back on, the black water problem re-appears. If I turn off the sky with 'TS', all the water is invisible. The bug: Water in the near grid is pure black, with some green near the shore. Platform: Windows 7 64-bit on VMWare Player.