i've answered this one before here
http://www.wgt.com/forums/t/58900.aspx
but here it is again
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i had, what i thought was a strange drop at kiawah, see
2nd shot
http://www.wgt.com/gameclient.aspx?view=showReplay&JSON=%257B%2520%2522GUID%2522%2520%253A%2520%2522b536f9fd-5110-4275-880c-9f3b0098e7ce%2522%252C%2520%2522Brand%2522%2520%253A%2520%2522undefined%2522%2520%257D
4th after penalty - in 60 - 70% rough.
http://www.wgt.com/gameclient.aspx?view=showReplay&JSON=%257B%2520%2522GUID%2522%2520%253A%2520%252213d200c2-04bc-46e7-8061-9f3b009971c0%2522%252C%2520%2522Brand%2522%2520%253A%2520%2522undefined%2522%2520%257D
i was going to suggest to wgt a full implementation of rule 26, but a quick search of the forum show posts over 2 years ago asking for the same thing, so looks like it's the last thing on the list for them, well it requires a lot of user interaction to do it correctly.
for your shot it was not a bug. as the op should probably know, it is the committee that defines hazards on a course, not congressional, usga, r&a. the committee here is wgt.
you went into a water hazard, not a lateral water hazard. i have not yet found a lateral water hazard, therefore rule 26 1 c is never used. what is used is a "butchered" rule 26 1 b - drop behind the hazard (it doesn't matter from which side you crossed the hazard margin), on a line keeping the point at which you crossed between you and the pin.
here's the butchered bit. normally you should be allowed to go back on a line as far as you wish, but with no user interaction, the software drops at the nearest point to the hazard.
i messed around on that hole, to get a similar drop, see
shot into hazard
http://www.wgt.com/gameclient.aspx?view=showReplay&JSON=%257B%2520%2522GUID%2522%2520%253A%2520%2522612cc20e-ce3c-442d-b8ba-9f4200b23d77%2522%252C%2520%2522Brand%2522%2520%253A%2520%2522undefined%2522%2520%257D
drop place, other side of hazard
http://www.wgt.com/gameclient.aspx?view=showReplay&JSON=%257B%2520%2522GUID%2522%2520%253A%2520%25226c42f53f-f5a8-4ab1-b0aa-9f4200b2d456%2522%252C%2520%2522Brand%2522%2520%253A%2520%2522undefined%2522%2520%257D
sometimes the software chooses to use rule 26 1 a - drop at the nearest point from where the original shot was played.
i don't know what order, if any, the software uses, and unless wgt reply then we won't know, not that it really matters, as with above, if there is no user interaction we don't get a choice.
so it's a case of just suck on it til wgt try to implement user interaction.