*Wicked SPOILER*
In the musical the whole 'melting' thing is a ruse that Fiayro and Elphaba come up with. Fiayro hears somebody say that water will melt her, and then he promotes that idea (in a few instances in the show). But, as we find out in the end, the water really does nothing to her and it was all a ruse. So in the musical the water thing is just a ploy that they come up with to fake Elphaba's death. I think he came up with the idea after hearing some yokel say it (the line you quoted, I think).
In the book, I am not sure either. I think it had something to do with the circumstances of her birth, but I would have to re-read it to really figure it out.
"If you can talk, you can sing...if you can walk, you can dance."
- T.K. Greene