Sorry that I forgot about this thread...
Well, the settlement test is more for trapped air than water, oil may or may not settle out of lube oils depending on a number of factors.
OilKan's hot plate test is good, though, I prefer to precisely measure a sample of the oil (by wieght works well) then heat it for, say an hour at 95C or so on a hotplate. A decrease in volume pretty much implies water.