your problems are the result a result of the alphasorting of the engine and the multitexture effect of icx. as i assume your water is transparent, there are problems with the sorting of the transparent entities...
add my.transparent = off; my.flare = off; to the terrain action. this should do the trick. if not then you will have to change the multitexturing effect-file... switch off alphasorting and blending in each render pass (dont know the commands in detail, search the forums..)
