I think you have one little thing with the elevation.
If you used 'World' and then 'Set Map Elevation' and you made the map elevation down all the way, this will happen.
To solve it, just go to 'World, Map Elevation' and just make the elevation higher by a little bit, just enough to get your water wotking, because if you make the elevation all the way high, you will not be able to place mountains and or elevate the land.
Good luck on the project, Swift sword.