I studied back in 1999 to get my fixed wing pilots license, but in 1992 I built a hot air balloon which I got my commercial license in.
My balloon is the silver one in center of pic
I've had good luck with the old Mercs with no problems from the tiller-shift mechanism. The electronics can be hard to trouble shoot if not familiar with them.
Yes you can run it without lower on with water hooked up to it, done it before. Don't turn water on all the way,remember the size of the copper tube compared to your hose.