There are several "Surface Material" slots that identify which Materials are to be used for varius passes. The MaterialType enum in WaterBlock.h dictates which slots are used for which passes. At the time of this writing, the first slot is used for the "base" material. The underwater material is in the second slot, followed by the fog material (for the 1.1 fog pass). The fourth material is used for blending the normal map used on the 1.1 base surface. The final material is used when dynamic textures are turned off.