I didn't say carving expanded foam should be avoided.
But once you break the skin, you open up the porous sponge-like insides. The reason why that isn't ideal, in my opinion, is because that stuff is more fragile and will likely erode. For example, if you scratch the skinned exterior with your fingernail, nothing happens. If you scratch any of the exposed interior sections, you will have small flakes of foam come free.
As for water soaked foam, I'm guessing it can be problematic. Water won't really circulate through the foam well, and stagnant water should usually be avoided.