My sky is blue and as a test I try to use setWaterColor to Red. The reflection looks the same color blue as the sky. I was expecting it to have a Red tint to it. Is there something else that needs to be set to get this to work?
I think that you can play with water transparency, it should reduce the issue a bit.
I tried changing the transparency by using setWaterDepth (the only way I know to do this) to various values, and it made no difference.