He seems to be trying to convert one ice stone into one ice-colored regular stone block without any temperature-related properties (won't melt, etc). As someone stated earlier, though, ice isn't technically a stone. It's not in the matglosses or anything.
I know that lava condensing into obsidian is partially hard-coded; obsidian has the [LAVA] tag which specifies it as a type of stone to use for cooled magma and possibly magma pipes borders as well. There doesn't seem to be anything like this for water\ice, though.
Something else. When I throw metals into the magma, I end up with a plastic\melted unit of that metal sitting in a puddle somewhere (one tile with the name of the original metal, but the word 'bars' omitted) with the same icon as blood or vomit. When this cools, if I empty the volcano or whatever, my dwarves can go pick it up and move it, dump it, etc. but I can't get them to re-melt it into bars or anything of the sort.
One shot in the dark: try the LIQUID_MISC item token instead of STONE:
[REAGENT:1:LIQUID_MISC:NO_SUBTYPE:STONE:WATER]
this should indicate a STONE called WATER with LIQUID_MISC as its antecedent--it was a liquid and became a solid, which you mined to generate a stone. Best of luck!