Even though it is the particle that is being the issue, I don't think it's actually missing because then nothing would show at all. The Yellow and black striped texture means that it's a missing "texture". I do believe the watersmoke particle is ontop of skys rim, so do as suggested above and look in your particles folder and see if you have a watersmoke.png file. Chances are you're missing it.
Just getting getting a new copy of the particles folder with all the needed material inside would solve it, or just fetching the picture itself from another copy of FH installed on the computer.
