As predicted the solution to our problem of not being able to color the 'baked' water was an annoyingly simple one. It was a problem with the machine and not what we did. Gokul's and my Pc both letting us color the fluid after it is baked. So what we were doing was right. The only thing to remember is it doesnt matter what changes you make to the fluid before you bake it. After you bake, it does not retain the changes. So bake the fluid on default settings and change the color and texture after it is baked. Works like a peach.
An entire hard days of work solved in a matter of seconds at home!