Well, heck...
Why not jump in and see "if" the theory is correct. The LJ is a rotory pump, and it seems Toyota uses a combined fuel filter/water seperator, unlike the inline pump equipped engines, which has a seperate water sedimenter, and fuel filter on the engine.
DS, check this thread:
http://forum.ih8mud.com/diesel-tech-24-volts-systems/30994-argh-its-worse-than-i-thought.html go to post #23. Moose posted a picture of the stock water seperator/filter for his rotoy pump 3BII. Taking another stab here; yours will likely be on the firewall in the engine bay.
g(jumping into unknown)b