i do not think is the water..maybe you mentioned it to them and they take advange of it
change the mecanics/dealer and get another opinion they are taking your money - they are wolfs
but sounds like a electric problem..going through the water you got some contacts coroded...
A bent rod from water injestion is only possible if it took in water throught he intake or there is a gasket/or crack problem allowing coolant into the cyl.
When this happens the rod bends (shortening it) because liquid does not compress, so as the piston comes up and hits the water the rod gives way, a little water - a little bend, lots of water - lots of bend, you get the idea.
Although 140psi is good the others are @ 160, a bent rod will lower the compession in that cyl and could give this result (but there are other posibilities also).
My first reaction would be to aggree with the other posts that it is ignition or electrically related (like water in a connector)
It could also be fuel related like and injector problem or even bad gas (water in the tank will do it!).
From reading your second post it sounds like the dealer is knowledgable and capable. If they are using a Borescope and a micrometer to check piston height and they are saying that #1 is lower in the cyl then you may have a bent rod.
This is what you can do to make sure they are llegitimate and you are not taken advantage of:
1. Ask the dealer if they will gaurantee the repair will solve your problem.
2. tell them that when the cyl head is removed you want to verify the piston height (cyl 1&4 will be exactly even with the top surface of the block. Have the tech show you with straight edge or micrometer to measure the height difference.
3. ask them to aggree that if the cyl height is correct they will reassemble it at no charge to you.
If they are confident in there diagnosis they should have no problem agreeing. If not then get another opinion!