Okay, I'm running out of ideas now, sorry... But a couple of shots in the dark, all unlikely to solve the problem:

* Run in compatible mode or whatever it's called in Vista
* Rename water_surface.tga so it won't find the file and default to the vanilla one
* Upgrade your graphics driver just in case
* Close all kinds of other programs you have running, including services

BTW, how much RAM do you have?