Only put in what you intend to run in it... synthetic motor oil is widely used... I would go with a good multi viscosity like 5w 40 or 5w 50, but I wouldn't 'flush' with anything that is not going to stay in it (it's a very small capacity) ...
As for water getting into it, you would have a frothy gray color, not black.... And moisture will not stay with a hydraulic system long, the heat will usually steam it out...
Cooling fins & fan are critical .. . They have a tough time dumping heat, that's another reason I would go with the multiviscosity oils... :smile:KennyV