Platform: Windows 7 64-bit on VMWare Player.
The bug: Water in the near grid is pure black, with some green near the shore. Underwater water is fine. There's no problems with far water. If I turn off the sky with "TS", all the water is invisible. If I turn the sky back on, the black water problem re-appears. Changing UseWaterDisplacement has no effect. Turning water ripples off has no effect. Turning anti-aliasing off has no effect. Altering the grid load sizes has no effect. Installing the DirectX9 June 2010 redistributable had no effect. Re-installing VMWare Tools had no effect. Turning on all reflection types in Oblivion.ini had no effect. Yes, "save settings" is on in OBSE/OblivionReloaded.ini. Fast-travel had no effect.
HDR is currently off, as nothing gets drawn with it on (this is not a problem for this thread, unless turning HDR on will also solve the water problem).
Version: Steam, all DLC.
Modlist: Unofficial Oblivion Patch, Unofficial Shivering Isles Patch, Unofficial Plugins Patch, Alternative Start (the one where you arrive in a boat, and can adjust your social status), Galerion Unarmored Acrobatics, MenuQue, Oblivion Reloaded.
Others: OBSE, Wrye Bash, Oblivion Mod Manager (switched to Wrye Bash when OMM could not handle OR without overwriting TerrainNoise.dds; did *not* overrite TerrainNoise.dds), LOOT.
Please help.
Edit: Turning off water reflections entirely works, but is ugly.