Most municipal water treatment plants treat sewage and then discharge the water to a lake or river. There are a few (I think there's one system in southern California) that does treat wastewater and put it back into the drinking water supply. So I guess you guys are both kind of correct.
But as far as wasting water, it's nowhere near as bad as watering your lawn. It's reccomended that you water your lawn one inch of water a few times a week. That ends up being over 6,000 gallons for a 100' x 100' lawn each time! Not to mention what kind of impacts fertilizers have on surface waters.
There's also the aspect of the quality of the water we discharge when we do water changes. Most surface water quality standards are written with the health of fish, plants, and inverts being the goal. Since that's what we do for fun, we're putting out exactly what they're trying to acheive in treating waste water.
Sorry for the novel.