Waterlily requires WordPress 2.0.x - 2.1.x. Download the theme files by clicking the snappy folder in the top right sidebar on any page of this site. Once you have extracted the files, upload the Waterlily folder to your wp-content/themes directory on your web server. Done? Great! Login to your WordPress administration panel, click the “Presentations” tab and activate the Waterlily theme.

Waterlily is fully ready to take on Sidebar Widgets. But what are they? The best way I can explain them is to say they make organizing the content on your blog a LOT easy by providing you with ‘drag-n-drop’ functionality. Once you have them installed, you’ll see what I mean. You do need to install the WordPress Widgets plugin, however. Visit this site to get them and follow the instructions on how to install them.

Once you have Widgets installed - you will see a new tab in the navigation menu in the Theme Editor section of your administration panel - click that tab and start dragging and dropping elements around.

The sidebars can be edited. Please make note of the helpful comments I left in the Sidebar Template for you. There is some special coding in that template for the Widget handling - so you want to steer clear of those bits.

Waterlily uses the typical WordPress list markup and your basic structure to add new stuff would go something like this:
<li><h2>Menu Title</h2></li>
<ul><li>menu item</li></ul>

Simple, I know. Understandably, even with Widgets, you may want to add different elements into your sidebar - so following that format above will get you there.

BACK UP YOUR TEMPLATE FILES BEFORE YOU MAKE CHANGES TO THEM!