RE: Water Lugia? What? It's Ash's Torkoal All Over Again!
It's a water-type because being a water-type actually makes sense. It should've been water-type in the first place but some drunk in Game Freak screwed that up.
It lives in the water, mates in the water, dives under water, lives in an island of whirlpools, has powerful water moves... and is a Psychic-type, which it probably is only because of its telepathy in the movie. Joy. About time they get it right.
...actually it's just because Ho-oh is fire as already said, and fire and water-types are opposites, so they made two water-type Lugia. Blue cards look better with Lugia's body coloring anyways.