in the legends and lore section on levels and their meanings it says this,
"Another reference to the Trow's red water supply. In this level we must get to a lake (or "pool") of the stuff. In the artsound.gor file, some artwork for the water in this and the previous level is actually called "rusty water"."
i always thought that this was not a reference to the science of why the water was red, but as a reference to the trow city you are in, because back when the trow were powerful, they built their cities out of iron and when connact defeated them, he melted their cities into pools of liquid iron and entombed them below the metal.
Gothmog