What sort of oil analysis service are you using? This outfit
here

http://www.oillab.com/oil.html

says that water is detected at levels of 1% or more using
the physical test, and most other contaminants using spectroscopic
analysis. My understanding of the spectroscopic test is that they burn
a small amount of the oil, run the light generated through a prism to
split it into its colors, and analyze the spectrum to get an idea of
the elements present. Water doesn't burn.
If they're not using the ASTM tests, your water content
numbers may be useless. 1% is a lot of water, and besides, much of the
water that may have been in your oil may have already turned to acids.
1% water in 6 quarts of oil is 2 ounces, a third of a coffee cup.
This argument could go on for a long time. It will someday
be settled when you finally get an overhaul and the technician reports
on what he finds. My experience, and the experience of many others, is
that condensation is real and it wrecks engines.

Dan