After digging into the pump the mechanics are very simple. I believe what happened was when they assembled my unit it was done hastily and in so doing they damaged that small o-ring in the attached photo. If you blow up the photo and look inside you will see where it was cut.
Also, the pump assembly lube is some kind of nasty stuff. Once I used a quality silicon it seems to be great. I may buy a spare.
Also, you don't need the water.