I think I'm the only other one around here with a FantaSea pool, so I probably have a far more intimate knowledge of their construction.

1: I don't see the U-channel that the bottom of the 4x4 sits in (the wooden truss of the 4x4 and the diagonal are all one manufactured piece. The U-channel forms a rectangle around the perimeter of the base of the pool and is a critical structural element. It shouldn't be buried and needs periodic maintenance (wire-brushing and repainting with Rust-oleum or equiv).
2: The plywood Water Wall is 3/4" marine-grade ply with a plastic vinyl finish on both sides--or is supposed to be.
3: The plywood is attached to the vertical 4x4 from the inside of the pool, under the liner. A special non-bleeding tape is used to cover the screw heads and protect the liner.
4: The 4x4 sits in the U-channel to keep the water pressure from driving the plywood and the 4x4 out.
5: Repairs to the plywood (like replacement) can only be done with the water drained and the liner removed--i.e. at liner replacement time.
6: It looks more to me like the 4x4 has been pushed or jumped out of the channel and the plywood is bowing from the pressure past it. It MAY be possible to push the wall in but it may take some serious leverage (like a hydraulic jack) to move it enough to reinforce it.
7: FantaSea provides, for the non-wood Water Walls, a reinforcement of a vertical treated 2x4 that goes BETWEEN each pair of trusses on two foot centers, but the 2x4 must be in the U-Channel and be long enough to lock in behind the steel truss the supports the deck. Those 2x4s are probably your only shot at repairing your pool WITHOUT draining the water, pulling the liner and removing/replacing the Water Walls.
8: You should talk to FantaSea's tech support. Leisure Living, aka PoolSupplies.com still supports FantaSea pools (but I don't know if they still manufacture and sell them).
9: I'll try to dig up a picture of what my FantaSea looks like--in the structural support dept. You can see the U-channel at the bottom, and the 2x4 supports between the trusses.

http://home.earthlink.net/~dashmanc/pool/wholepool.jpg

You can sort of see construction details in this shot:

http://home.earthlink.net/~dashmanc/...anifoldWeb.JPG

Hope this helps, and hope this is clear.

Carl