Of course water settles to the bottom it has a higher specific gravity.
Regarding the 4.3's dieseling I have heard a few folks install a AC soleniod set to engage when running and then disengage it to drop the rpms before shutting the engine down.
Typically backfiring is caused by timing or restricted exhaust. Maybe a stuck flapper that does not open and causing too much back pressure. How many hours are on the engine, exhaust?