Well, basically the "smoothing out" feature never takes the currently
selected material into account. Maybe we can hide the material selector
while the smoothing mode is active (to avoid any confusions).
This is basically intended: the regular terrain tools only affect the
"terrain", i.e. solid ground, not water. That's why the brush is not
visible on water surfaces. If you want to edit the water explicitly, you
need to select the dedicated water tool (F5 -> 5) 
i still don´t understand the thing with the water. Maybe i missunderstood but i thought that we are now able to "smooth" water. The same way as we can with the ground. F5-5 just allows me to place water. I can see no difference to before the patch.
What was added is the painting-feature, which is very nice. But i seriously hoped we could smooth the water and by that create beautiful waterfalls and rivers.