There is no way to get the water to stop looping. There are two methods you can use to help hide the holes though, you can use interior based terrain or you can use islands that don't line up with the water block tiles so it doesn't try cutting out some of the water. Unfortunately that means you're stuck with very small islands or a large island covered in holes that prevent the water tiles from being deleted.
A slate interior will hide the edge of the map, although at one point there was a bug involving looping invisible terrain and the third person camera that would make your screen zoom in really close at the terrain level. I haven't used the editor recently so I don't know if it's still an issue. At one point I was making a similar map and I've even got a sand covered slate interior I made somewhere, but I gave up because I didn't want to deal with the water looping issue. I wanted a big island and the hole method is just tedious, both to make and to disguise the holes, since you've got to put rocks or plants over them or they look like crap.
The reason turning off depth mask makes it look like there is no texture is because there is no texture, and I bet that's why you get the color change at the end of the map too. The depth mask uses the depth mask texture to make a gradient effect for water depth. If you turn it off it just reverts to your actual water texture, which I assume is blank because that's what I'm seeing at the map edge. Fixing this would still give you the color issue, but at least the water over the void would be textured. Posting your water block code would clarify this.
The one other solution I came up with for the water, but never tested, was using an entirely invisible water block for the water effect, then using essentially a giant water textured block (similar to the bedroom window) with no collision for the water texture. Unfortunately this means you get no animation, waves, reflections, etc. Actually you might still be able to get a sky and sunlight reflection out of a water block with a blank white texture and low opacity positioned slightly above the giant water square, but you still get no moving water. I figured it was a pretty small sacrifice for being able to have non-repeating island maps, especially since you can now use the entire terrain area to make your island. A full sized island would be a little bigger than the slopes mountain, allowing you to fit in a lot of detail. However, I've never experimented with this.
