Edit: After showing this off to a friend in multiplayer, he pointed out to me how ridiculous it is to use a (potentially rare) statue for this when mannequins cost just 20 wood and stack perfectly well, so you can carry several in case you lose one.Update: Sadly, this method no longer seems to work in recent versions of Terraria. Mannequins break instantly when lava makes contact with them. Statues survive the lava, but when water contacts it, obsidian is now created which displaces the statue.
Original answer: Okay, I've been poking it for a while, and have come up with a way to destroy any amount of water with just two items! This method does require you either tunnel around to get underneath the body of water you want to drain or stand in it while working, but it's still often faster than the old fill/dig method.
All you need is a mannequin (possibly other furniture as well, but something 2 blocks wide worked best in my tests) and a bucket of lava:
- Dig a 2 by 3 hole underneath — but not connecting to — the body of water.
- Place the mannequin in the hole, then drop the bucket of lava into it. Wait for the lava to settle.
- Dig a channel from the water to your lava hole and watch the water vanish!1
- Dig out one of the blocks supporting your mannequin2 and wait for the lava to settle.
- Pick your lava back up.
Sadly, you can't reverse the process to destroy large amounts of lava — the lava will happily hover above the water, never making contact, forming obsidian, or being destroyed. Worse, attempting to pick up this glitch lava will destroy your bucket!
1 The water vanishes because, when falling into lava, it should make obsidian. However, the mannequin prevents the obsidian from being formed (as they would occupy the same space) and the water is simply removed because it has no place to pool.
2 If you aren't close enough to your mannequin chamber before breaking this block, the mannequin may fall in the lava and be destroyed. Bring spares!