I noticed the map was being projected into the skybox and it turns out you had a sky_camera inside your level. After deleting it, the water showed up.
Water can't be a displacement.So this was supposed to be a part of a 3D skybox? I'm sure the water would work normally if it was a power 4 displacement (cuz skybox objects don't need collision).
Edit: Their sky_camera could be a mistake though.
Water can't be a displacement.
The water brush, that splashes and reflects and refracts and that you can swim in and whatnot, can't be a displacement. If you put one of the "water" textures on a displacement, they'll break it and not work - or look - good. You can, however, put one of the waterfall textures on a displacement. This won't act like the water in any way, since the waterfall textures are technically not "water".
And yes, sky cameras should be in the 3d skybox.