I can't really speak much to the plausibility of a water canopy. It certainly seems like an impossibility, but then again, Venus (and all the gas giants) have extremely dense cloud layers, so I wouldn't rule it out completely.
That said, a water canopy in the upper atmosphere would have several interesting effects. First, it would work to diffuse light quite a bit. Probably to the point where a rainbow would be completely unheard of.
Water would filter out many of the harmful rays of the sun (alpha and beta radiation for example). A water canopy in combination with the ozone layer would block most of the ultraviolet radiations from the sunlight as well.
It would also likely increase oxygen content and atmospheric pressure. So everything on earth would be much healthier and heal a lot faster (sort of like a diving bell). This would also cause plants and animal to grow bigger and live longer than real-life equivalents.
Humidity would be a lot higher, and rain probably would not occur at all. This is because the more humid the air, the more saturated it is with water. If the air is completely saturated with water, then evaporation can no longer occur. If there is no evaporation, the water cycle stops and you have no rain. Any excess water would naturally congregate on the ground every night when things cool down. This, in addition to underground springs, would let plants grow without the need for rain.
Additionally, a greenhouse effect will occur that spreads the heat energy evenly throughout the whole globe. Granted you won't have ice cap anymore, but you will have an even, liveable, temperature (unlike IRL where if the ice caps melt everything either becomes a desert or a tundra).