There is a character named Runemaster Thorn who has the ability to go to a spot that is in his line of sight by forfeiting his 5 movement points. Would this allow him to move over a water area since water does not block line of sight, or would the water rule apply? (i.e. you can't jump oiver water)

He can go past water. Flavorwise he's teleporting, not jumping.

I concur with James. Thorn does not pass over OR through any of the spaces in between points, thus obstacles in those spaces are irrelevant as long as they don't block LoS.

Note that this also means the OL can't play traps on Thorn in any of the spaces between, because Thorn never enters those spaces, which can be a significant advantage for him. The OL can still get him in the arrival space, though, as usual.

And he doesn't forfeit his movement as you mention. You just SPEND 5 movement points. They can be from items, fatigue, effects etc.