Half submerged objects in water /w emap = true

Hello...

I have a ship object which when NOT Emapped looks fine, and has half of the object above and half below the water. When I enable emapping on the model the emapping displays fine, but it causes a strange problem with how the ship displays.

It makes the whole ship appear that it is "floating" above the water. When I move the camera below the water, the whole ship looks like it is BELOW the water. This is without moving anything. The ship is DEFINITELY situated correctly to where it should display half in, half out of the water like a normal boat should.

Has anyone heard of problems with submerged objects displaying right?

Thanks :)