re: Water on the brain?
"How would NASA buying water test payloads enhance the survivability of real payloads? "
If rocket doesn't blow up, then you have enhanced survivability. If you test rockets with water payloads instead of payloads worth a hundred millions, then you will lose less satellites.
By govt paying for test payloads, it will result in more testing of rockets. It will make rocket makers more willing to improve the designs and will encourage completely new rockets to be built.
Water payload is mostly for ELV but it's possible it could also be used by RLV. It's also possible that other payload might be added to water payloads, such as low cost student type payloads.