mavie, your reservations about Noah's Flood are entirely on target. Inconvenient facts like you pointed out prove conclusively that there was no earthwide Flood a few thousand years ago.
Leolaia pointed out that the "water canopy" theory is the product of biblical exegesis, and to a large extent, that it is. However, the ideas of the Watchtower Society on this have an interesting history and show that the idea is only loosely based on the Bible, and solidly based on the ideas of a few crackpots. In 1874, one Isaac Newton Vail posited a theory he called "The Annular Theory" which claimed that the earth was created with a bunch of rings like Saturn has, and that these rings fell to the earth one by one over thousands of years, causing unrecorded catastrophes until the last ring fell and caused Noah's Flood. Around 1900, an energetic Seventh-Day Adventist named George McCready Price began publishing books and tracts supporting the young-earth creationist beliefs of the SDA's, and he apparently used a modified form of Vail's ideas to come up with what is today called "the water canopy theory". He published much about this up through the 1940s. Meanwhile, the Watchtower Society under C. T. Russell adopted Vail's ideas, and taught these until about the mid-1960s. Meanwhile again, in 1961 the evangelical Christians John Whitcomb and Henry Morris published the influential book The Genesis Flood, which was largely an unaccredited update of Price's Flood theory, including the notion of a "water canopy". By about 1965, it appears that the Watchtower Society had adopted Morris' and Whitcomb's ideas (giving neither them nor Price credit, of course) and dropped Vail's ideas completely. What the Society failed to note -- perhaps they were too stupid to understand, or more likely, figured they could get away with their subtle plagiarism -- was that these notions of a "water canopy" and "flood geology" went hand in hand with young-earth creationism, which for some years they had explicitly rejected as "unscientific". By about 1980, the Society had quit mentioning any notions based on "flood geology", except for the "water canopy" theory, and soon explicitly rejected young-earth creationism as not only unscientific but unbiblical. So the Society's teachings have been a mish-mosh of ideas grabbed from various authors, all of whom were crackpots.
As rockhound suggested, you ought to take a look at my essay on The Flood (the updated URL is: http://corior.blogspot.com/2006/02/part-1-general-description-of-flood.html ). It goes into some detail on your points.
AlanF