Early in the episode Tony and his crew are having a group lunch. The camera shows Furio at the sink, while Tony is talking. The camera switches to Tony talking to his crew. Then, the camera switches to the crew again eating, although now Paulie is at the sink talking to the crew and Furio is eating.
If the water heater is leaking, water would continuously feed into the system and the basement could conceivably fill with water as depicted. Normally a leak starts with dripping, so the Soprano leak would need to be more catastrophic and the basement unused for a while.
The FBI states the Soprano's have a 120 gallon water heater. But the large basement is completely flooded knee deep, which would require over 700 gallons of water.
When Tony reads the newspaper story headline, it's clear that it's a fake headline because no actual headline would leave so much white space.