The way I've heard it wasn't that people drank wine instead of water rather that wine was less alcoholic in antiquity. Then people asked why and concluded it might have been more widely drunk. I don't recall hearing of it as a substitute for water. Just that it was weaker and thinking if the implications that could present.
Yes, wine was weaker, but that only explains willingness to drink so much, not the actual practice. Romans and greeks generally watered their wine down to about half/half if I remember right, and considered anything higher to be barbaric (and a waste of good wine). That's part of why greeks could go all night drinking from bowls in large groups without turning into frat boys, the reduced alcohol content may everything quite a bit tamer than it could have been.
