FaustWolf - Yeah. I'm just surprised that no one else has stumbled into this situation. At least not that I can find on the internet so far (hard to know exactly how to search for it). I'm really hoping there's an in-game solution, but it sounds like there isn't. If this particular situation is unwinnable, it should really be highlighted somehow so that more people don't happen upon it and get discouraged from playing through the game again. I don't know if this person is playing on an emulator or using the game disc. I personally use the game disc on the PS 1 or PS 3, and I'm not very knowledgeable when it comes to emulator manipulation...
Acacia Sgt - Early in the game, yes, there's just a treasure chest there (MagmaBomb I think), and a caved in entryway. (It's the screen with two magma waterfalls.) So using the Ice Breath in that screen only gets you the chest, first time through. But when you go for the relic much later in the game, the entryway is no longer caved in, and you HAVE to go that way to reach the Fire Dragon. And apparently you're not at the correct elevation level until you freeze the magma in that screen. But once you start the quest for the relics, the Water Dragon's dialogue is changed, and he no longer offers the Ice Breath if you never got it earlier. Again, that's how the person who ran into this problem described it. I'm tempted to start a quest and copy his actions, just to see it for myself - but it's just so far into the game...
So yeah, the situation seems weird, but it really just falls into the category of "Unwinnable by Mistake," as described on tvtropes.org. It happens in games many times - I'm just surprised that I've never heard about this one till now. I guess it's just really unlikely to never talk to the Water Dragon until this point, even if just out of curiosity. But it's a very possible scenario, so I'd think more people would've accidentally stumbled upon it.