Hmm, good point it is on that first island. I wonder how they died and what the fuck the sub was doing at the top of the waterfall?!? Too bad we don't have someone from Naughty Dog here to explain that. To say that the place flooded is totally ridiculous given that waterfall has an enormous drop. Then there's the fact that on one side of the sub there's the giant rock wall. Seriously, WTF is the sub doing up there? Yes, the Germans were certainly at that spot following the path of the Spaniards, but it doesn't explain at all why the sub is up there and how it possibly go up there, and why/how the Germans on board are dead. That's a pretty big hole in the story. Maybe I'm just forgetting the answer to all of that.
Calling Kittonwy, do you know?? Anyone?
Edit: Here's an old screen shot of the area, which kind of gives you a feel for it. There's a rock wall behind the sub, which given the direction the sub is facing would mean the sub either came over that waterfall, or it came through that rock wall. Either way, it doesn't make much sense. You have one waterfall above, a landing area where the sub is, and then another waterfall which the sub is sticking out over. If you look at the area in the context of the game, the sub is at roughly the same level as the ruins where Drake comes out after running over those platforms/fallen pillars. So maybe they were bringing the sub there to transport the treasure? Who knows, I guess that maybe the mystery of it is simply there to make you feel like something not quite right is going on here and that in itself makes the mystery that much more interesting and intriguing. The screen shot is from an old build of the game, and I can't recall off hand how much different the actual space is in the game. I kind of picture a U shape for the cliffs surrounding the sub if memory serves me on this. Regardless the way there's a waterfall above and below the sub makes sense, and so getting the sub there would seem an impossibility, unless they built the sub there with no intention of ever getting it out of there. The magnitude of a storm that create a storm surge that's 50 to 100 feet would be completely impossible.
http://ps3media.ign.com/ps3/image/article/789/789108/uncharted-drakes-fortune-20070517035059048.jpg