Though I don't find water physics annoying, I've gotta go with SML as well. It's a really special level.
... Wait, do you find water physics more annoying than auto-scroll--'cause SML has that, and I tend to think that ranks a bit higher on the annoying scale.
Technically, though, SML's water levels are forced-scrolling stages. And everyone knows that piloting a sub is not the same as swimming.
For best water levels, I have to say SMW and SM64. SMW perfected swimming in 2D games (and the shell made it even easier), and SM64 had nearly perfect controls.
Isn't it strange that Mario's swimming is much harder to control in Mario Galaxy than it was in SM64?