Sadly, I'd already tried that. It did clear up the "blurry mess" on the land textures, but water was unaffected. I turned off "water shimmer" in the game to see if it helped, but it made no difference either.
I also tried moving the texel origin to center from upper left, turned on/off sharpening, etc., all with no effect on water. Sigh.
When I get home tonight, I'll methodically go through as many combinations as I can, but it sure looks like they've changed some obscure D3D semantic and messed up an older (but still great) game.
If anyone else sees the same problem (especially if you fix it), I love to know.