@BenC5 thanks for your inquiry. At Andrew's behest we (the ArcGIS Pro graphics engine team) have investigated your repro case and after a reread of your question above this behavior and appearance are working as you have specified in the layer properties.
Why?
If you request that a polygon be placed "on the ground" then each of its vertices will be on the ground (whatever that elevation is) and the polygon itself will be triangulated to allow for this. This will necessarily result in a non-flat polygon for most cases with any elevation variation at all. You can use the coordinate readout in ArcGIS Pro to see the elevation at each vertex of your polygon.
If the same polygon is extruded using modes other than "absolute", then the top of the extruded volume will also be non-flat. You will see small thin triangles to account for the changes in elevation between vertices just as you would if the polygon were not extruded.
If you want to follow best practices for creating water polygon features, your best bet would be to use the 3D Basemap Solution tools as demonstrated here: https://www.linkedin.com/posts/gertvanmaren_arcgis-esri-digitaltwin-activity-6960112829840375808-jYf...
Give that a look, and please let me know if you have any further questions on this topic.
