Technically, drinking too much water can actually kill you. So, not entirely untrue about plain water not being dangerous to ingest.
In fact, "pure" water" is actually a bad thing to drink. It may refresh, but without the electrolytes that are normally found in drinking water, it can cause some nasty problems.
Hey, at least they didn't actually forget a character's abilities! Since Aquarius outsmarted her like that, it'd make no sense if Wendy wouldn't instantly go for the purification/cure on Yokai!Erza
Actually liked this conclusion, as much fun as fighting the yokai would've been, this makes more sense