Behold!

The logic for determining of a block can be replaced by water. A block is replaced by water if:
A - You can walk through it.
B - The material not part of this hardcoded list of materials.
C - The block is not part of this hardcoded list of blocks.

This means that it's impossible to have a block you can walk through with a custom material, without water replacing it.

I propose an API exposed in FabricMaterialBuilder that sets replaceableByWater(), with the accompanying mixins.

This could become part of block settings extensions. Unsure How specifically to approach it as this seems to be for all flowable fluids,