I am getting a message in the instrument panel saying "Water in Fuel". So I am guessing that I have a filter with some water in it. Is this bad? What should I do?
You need to drain the HFCM (Horizontal Fuel Conditioning Module), which is located under the driver's seat on the inside of the frame rail. The drain plug is a brass or steel plug (depending on what year your truck is), with a 6mm hex key fitting. If you have a 4wd, you may need to grind the hex wrench just a bit to get it to clear the front drive shaft. I'd highly recommend that you get a replacement IH plug. It much easier to use http://www.forddoctorsdts.com/articles/article-05-19.php
. If you have never taken the plug out before, you may have a problem. Many tighten it wayyyyy to tight, and it can sieze & strip the hex key. If this happens, you'll need to remove the whole cover & drill it out. Both the original plug & the IH replacement are o-ring seals, and need to be just snug / finger tight to work.
Get a clear jar or pop bottle that'll hold about a quart, and remove the plug. If you have water, it'll look like little bubbles in the bottom of the jar. If you have a few drops, its not bad, but if you have a large amount of water, or get water out after 3 or more checks, you need to get that tank of fuel replaced.
Its also possible that the sensor that tell the dash to light up the WIF, has gotten dirty or corroded. You can try cleaning it with carb cleaner, but if the fuel looks good, and the WIF keeps coming on, it would need to be replaced. The part costs a bit under $100 and can be chaged out at home, but make sure you get a new gasket for the cover if you have to take it off. The old one is not reusable.