For now, I'm willing to keep going, but I'm suspicious that you're right it may be doomed to duddom.
I'm more concerned by the water sales than I am by the pop disparity - though I am concerned by both. I've actually been at 3 cities for the past 23 turns, but to capture that third city I destroyed all its private infrastructure and killed 60-100k population, so it didn't really show up in the victory numbers. The main reason I'm languishing is the rebellion I brought upon myself - it put me back 10 turns when I was closing in on both of my other two starting neighbors, and tied up 1-3 BDEs for that entire period when they should have been cracking those cities. However, when my spies looked at your capital, what I saw suggested I have a slight tech edge and a slightly more significant infrastructure edge. That suggests I have a narrow window to catch up WRT population and cities, and I am verging on assaulting the two cities I would have liked to have captured 4-8 turns ago. If they fall smoothly (and my tech has improved over those 10 turns, so they might) there's a third that could also fall quickly, so I'm not out of it yet.
The money for nothing, OTOH, sounds a bit more insurmountable. Based on what you said here and in your bug report, it does sound like a bug. If I had to guess, I'd say that a zone you just captured/annexed/whatever is for some reason not collecting water itself like it should (hence why it just started on turn 40), so its private economy buys up whatever water you have on hand. If that's the case, you'll keep getting that cash indefinitely, and that'd be game breaking. If you could, I'd say to have a look at the zone-by-zone economy and trade reports - there's almost certainly information about exactly where that water is going and hence where the money is coming from. The amount of information this game gives you access to is kinda ridiculous.
[Edit: Okay, my blitz-sieges this turn worked. I'm at 5 cities. The water issue may make this untenable, but I've probably counter-snowballed enough that there's some value in keeping going.]