In theory you'd have legacy infrastructure left on scene from before the nukes and all, but how intact and functional it would be would vary from place to place. At least in some places, there may be the capability to restore 20th century amenities to local areas, at least to some extent, or at least piggy back more modest fixes on existing systems.
For the more typically torn up area, I would think that your players are on the right track for an effective approach with the idea of potable water points. In T2K NYC you're going to have radically reduced population levels, generally speaking, so I'd worry less about current human contamination of water supplies as the major issue (though that could be an issue where ever people are packed in without adequate sanitation) and more about pre-war pollution. Flowing water supplies in the NYC area right now aren't really noted for their potability, and with urban unrest, a couple winters of wear and tear without human maintenance, and such there's no telling what's leaking into the rivers flowing around Manhattan.
From a gaming perspective, this is one of those issues where I'd have some sort of NPC who knew the ins and outs of plumbing projects and have him just present some options or findings to players rather than trying to nuts and bolts it.
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