I dug into this issue and found a bug in the spatial io module. I've reported it to the dev team, but not sure when it will be fixed in production. That said, I've come up with a simple workaround to unblock you. You can add an option when loading the map to transform requests before they are made. Adding the following to the map options when loading the map will look for this service, and change "default" to "Default". I tested it out with the service you provided and it seemed to work.
transformRequest: function (url, requestType) {
//Look for requests to the water service that is for an image
if (url.indexOf('webmap.southeastwater.com.au/WMSWater') > -1) {
//Using regular expression to replace in case there are multiple styles in the URL.
return { url: url.replace(/default/gi, 'Default') };
}
return { url: url };
}