Hotrodder, you mentioned the conductor being via the water return.... i havent even got that one connected yet as i havent connected up the water so that could be an issue.
The problem is im not sure how i select the polarity on the welder. Ive got a main switch which is shown in the pics and selects dc- dc+ or a.c. but i was under the impression that when in ac the torch would be going between negative and positive??
All water cooled torches i've seen are TOTALLY reliant on water for cooling, it's not just the tungsten/torch head that's cooled but the power lead too. The current conductor is MUCH finer (for flexibility) than gas cooled torches and incorperated into the water return either as an internal braid or a seperate conductor inside the water return
Polarity is selected on the machine, not by swapping leads around.
That aluminium looks as though it had been buried in a peat bog for a few years before you struck an arc on it.