Simply explain to the guy how electricity works; there must be a potential difference between two points in order for current to flow. Electricity is not magic. It's not evilly looking to go around zapping people. It's physics. As long as you keep yourself from being the path of least resistance, you will not get shocked. Also, pure water is a very poor conductor. Its conductivity depends on what minerals in your area are dissolved in it.
On the "grounding" argument, I vote not to ground. I'm guessing the Coast Guard's regulations were made up based on large ships with electrical systems more like mains power. People don't understand that the reason mains AC is so dangerous is because of how the electric company chooses to transmit it. Instead of using two wires to transmit power from the generator to the house, they use one wire and then use the ground (literally) as the other wire in order to save money on wire. When you stand on the ground, you are literally standing on one electrical wire. If you touch the other wire, you will be shocked. If the hull/frame of a metal ship is used as one of the wires, I would say the same rules apply as mains power. The green "ground" wire and the white "common" wire actually go to the same place. The raison d'ĂŞtre for the green wire is to make it more likely for the black wire (if it's somehow compromised) to come in contact with ground than with you. Even if you are touching the green wire (or a housing connected to the green wire) when the black wire touches it, you will not get shocked because the green wire is the path of less resistance to ground. However, if you hold the green wire in one hand and touch the black wire with the other, you will get shocked because you are the path of least resistance to ground. That's why GFCI's were invented. With them, any time current flows to the green wire, it disconnects power automatically. These would not be a bad idea on a boat, though I'm not sure they are really necessary. This is why I do not ground a generator: With a small generator, the potential difference is only between the white and black wire. The green wire (the third prong) can help make it safer, but is not as important as it is with mains power. If you ground the generator to the boat and you touch the boat, you become a (green) ground wire. If you then come in contact with the black wire (like if the wire's insulation gets cut or abraded) the electricity will flow through you to get to "ground," thus making grounding the generator MORE dangerous. In this case a GFCI would save you. Also, I would not run any generator on a boat in excess of 170 volts. This is the point at which electricity over-powers your nervous system's ability to command your muscles. Above 170, you can't let go. Follow some basic safety rules. Use one hand at a time. Test a bare wire before touching it. As in anything, learn as much as possible and use common sense and you should be fine.