Hello and welcome to BlueplasticTracks. Yes, Distilled water is the correct water to use for these. Tap water has to many minerals and things that can cause damage from what I recall reading somewhere.
Welcome to BPT Clicker
You are correct in using Distilled water and as Mr Ripley says the Minerals in tap water can collect and damage the the train. In fact I use distilled water in everything like coffee makers humidifiers, trains etc because of mineral deposits that can shorten the life of any appliance. One should always have at least a gallon on hand for such things at its really not that expensive, at least not in my neck of the woods.
To be honest, I just use tap water from my sink. :3
The shining foxtaur who loves trains and plarail! JR SOCIETY!!!
I've used tap water when I had mine since that was the only type we had, and I didn't know/care about distilled water back then. That must've been why it squeaked whenever it was going to run out (unless it was just designed to do so regardless of the water used).