I had the issue with the green textured distant water as well (on XPSP3 as well) - but managed to sort it while trying to increase FPS, as when I changed the Forest setting to Very Low the sea went back to normal (Forest setting was previously set to low.)
Presumably it's some sort of tree based texture error? (Would explain why it's green I suppose.)
Of course the only problem now is there are no trees.
