Yup. You must navmesh everywhere, including underwater. Use "O" as you said to make the underwater navmesh blue. This not only will allow slaughterfish to function, but it will alter how other creatures act around there. For example, NPC's will walk directly ON the navmesh surface if it's not marked as water. Meaning NPC's will grind along the bottom of your lake. The animation is determined seperately. So they will be swimming (Not walking), but they will follow the ground. However if you mark the area as water, the NPC's will swim along the surface instead.
