That doesn't sound like a fad diet tho...just something that tries to encourage a basic change of eating habit. A gallon of water a day is nothing that abnormal if you're not drinking a lot of soda/juices...and as I think I mentioned earlier, cutting out sweets/sugar etc. if you eat a lot of them to begin with will often result in weight loss. That's not fad...just common sense. He said he still ate a lot...probably lots of fruit, breads, and vegies or something...
Whether what he lost was fat or not...well...who knows. Probably not all fat, no. Depends how heavy he was to being with. But if he's going to the gym now, after being inspired by losing a little initial weight, I don't see why weight gained couldn't be muscle...depends what kind of workout he's doing, of course, but from his descriptions it doesn't sound to me like making a grand statement of 'fad diet' in his case is neccesarily true, even if he's calling it a 'water diet'. Sounds like all he's doing is drinking more water between/during meals instead of eating candy & soda's & hamburgers.
When I think 'fad diet' I think Atkins or nothing but weird protein shakes all day etc. anything that claims to make you lose weight without exercising and 'keep it off' - which of course is stupid since no one ever stays on the fad diet long enough to keep it off forever, for various reasons. Fad diets are good for movie actors who want to lose a little weight for a role, but not much else.