water in the tank is always going to give a false reading in a capacitance system due to the two liquids having different dielectric values. The only pilot I know who had a problem with water in the tank said the gauge went to a max reading ie showing full tank.
But with modern multi sensors in each tank the error is reduced so a max indication is not always the case, the type I fly has 14 sensors per tank and even with considerable water in a tank the over reading is minimal.