Is it possible that they had visual to the water, but had no idea how high up they were on a visual approach, because the altimeters were set wrong?
Lots of things are possible. At this point, I'm trying to think of what is most probable.
I would be surprised if there was a significant error in the altimeter setting. They were roughly 1,300' low. That's a big altimeter setting error, ~1.30".
Over water without any landmarks or altimeter, I don't know how to tell how high is high, which is one of several reasons why I don't like being over water without sight of land.
The correct way is to use your VNAV path, altimeter, and radar altimeter.
You also get visual clues from the runway itself which can lead to visual illusions. For example, landing at LAS or SJO (San Jose, Costa Rica) both give the visual illusion of being much too high due to the slope of the terrain. If you're looking at a causeway, thinking it is a runway, the narrow width would also throw off your perception of height.
At this point, the most probably explanation by my judgement, is that, unfamiliar with sight picture for this runway, they broke out seeing the causeway and descended visually toward it. Plenty of information available to identify and repair that error but the one thing we do know is that they got very low, very early.
Back to the radar altimeter... We brief a stabilized approach plan before each approach. Many brief that they'll be at a certain speed and configuration at one fix and fully configurate by another. I prefer to brief gear down at 2,000' AFL (and descending) and final flaps at 1,500' AFL. I like that better than fixes because fixes change names and distance from touchdown. 2,000' and 1,500' is always 2,000' and 1,500'. It also keeps the radar altitude awareness higher. I think if I was in a similar situation, and mistook the causeway for the runway, the reference to the RA would have alerted me to the mistake sooner.