When you open the fuel seperater valve something should be coming out (double check that you are opening it all of the way.) I have seen many times where the light will come on with no water in the fuel and it is the sensor causing the fault. How many miles are on the truck?
You'd be best to call the dealership and tell them the issue (tell them you believe it is the water in fuel sensor) and see if it's covered. As far as driving with the light on, it will not harm anything. I know some people who have had the issue for 20,000 miles (draining every 5k, which the light would stay off for a little bit, then come back on.) and nothing has been harmed!
FUEL CONDITIONING MODULE
The electric fuel pump draws fuel from the fuel tank through the 1.27 cm (1/2 inch) fuel supply line. When the fuel enters the fuel conditioning module it flows through the 10 micron fuel filter which separates particles and removes water from the fuel. The separated water collects at the bottom of the pump. If enough water is collected, the WIF sensor detects it and the PCM turns the WIF indicator ON. The conditioned fuel is then delivered to the secondary fuel filter.The unused fuel returns from the secondary fuel filter through the 0.95 cm (3/8 inch) fuel return port and enters the unfiltered side of the fuel conditioning module. Depending on the fuel temperature returning from the secondary fuel filter, the recirculation thermostat directs the fuel to the fuel tank or through the fuel conditioning module back to the inlet of the primary filter.
One thing you may try doing is to take a small piece of wire or something and poke it through the drain hole when the valve is opened, I have yet to see one not drain. But you may see if something is clogged in the drain or if it is gelled. It is not uncommon to have a sensor failure but the draining part is odd. You are safe to drive, if you have a loss of power then thats another issue, but do not see that as of yet.
Try that and let me know if it makes a difference.
It appeares that the fuel flows throuh the filter and the separated water sits at the bottom of the pump. (I have never seen one not drain, I've never tried draining twice either.) It is normal. The sensor you need is the WIF Sensor.
WATER-IN-FUEL SENSOR Removal All vehicles
Installation Vehicles with a damaged sensor
Definatelty call the dealership to see if it is covered. You may want to have the fuel filter replaced at the same time. If it is covered and that the whole module is replaced the filter should come with it.
From my experience at the dealership I have seen this sensor go bad many times on these trucks. The light will go away for a little bit then come back and the sensor is the cause. If I remember correctly the whole module is replaced (the whole unit the fuel filter is in) As far as the draining goes that is what is described on the operation of the drain valve.
When the fuel enters the fuel conditioning module it flows through the 10 micron fuel filter which separates particles and removes water from the fuel. The separated water collects at the bottom of the pump. If enough water is collected, the WIF sensor detects it and the PCM turns the WIF indicator ON. The conditioned fuel is then delivered to the secondary fuel filter.
I'd say that only water drains from it reading that. I asked a Tech. I worked with that is very good with diesels and he has never tried draining twice to see if anything comes out or not. Try driving the truck for a little ways and redraining to see if anything comes out or not.
The truck is safe to drive
And yes the WIF sensor is the most likely problem (only one I've seen yet for this issue.) Hopefully it will be covered under warranty.