You can thin Squadron putties with liquid cement (eg. Testors), acetone or lacquer thinners, though the latter option means it takes a little longer to dry. When thinned, apply in very thin layers to minimise damaging or softening the underlying styrene.
Generally, you won't find any "solvent" based putties which are compatible with water. Some of the epoxy based products (eg. Milliput) can, to an extent, be smoothed with small quantities of water.