Yes - I actually teach science, the trouble with water is that it is a very effective solvent and it'll dissolve co2 and whatever it can find upon exposure to the air, but that's a lot less dissolved ions that rain or tap water, so distilled is certainly a far better electrical insulator (again, we say insulator but from a technical point of view there's no such thing, just poorer conductors) than using normal water (roughly about 1/1000 as conductive as typical tap water) particularly with a low current and voltage.
I've seen a layout that included a section of AFAIR about half a metre of flooded track and it did just use tapwater. Though there probably were some electrical losses through the water (which would effectively create a parallel circuit to that through the motor) it didn't seem to be causing a signficant loss of power, probably less than the mechanical drag created by the water. Clearly a longer water section would have greater losses but it would be easy enough to experiment with a length of track and a bowl of water.
Edited by Pacific231G, 02 September 2017 - 22:07 .