I've also heard through the grapevine that it is closed permanently. It's probably not worth the money it would cost Disney to restore it and bring it up to date.
When I was about 8 my dad worked at the Emerald Hotel (now PPH). We would meet him at night to go over and watch the Fantasy Water show at DLH. I thought it was the coolest thing I had ever seen (granted, it was 1986)! The music, the neon, the water effects - it was fantastic! Then about 4 years ago I was at the DLH and decided to check it out for nostalgia sake. It was so pitiful and SO outdated. The show hadn't changed one bit in 15 years. With water shows today, like at the Bellagio, so many people are accustomed to being wow'd, and there just isn't enough space to do anything impressive where the Fantasy show used to be.