distilled should be ok if you're using a quality salt mix but distilled is going to be much more expensive, check around in the section were the drinking water is, i have yet to be in a store that didn't have a drinkin water machine. it is fine to have 2 SW tanks going at the same time, you could have one for a QT, or plumb them both together and use the 16g as a refugium or you could just have 2 SW tanks, one nano and one not-a-nano tank.