There are a number of problems with this idea. A big one being the fact that no animals actually breath H2O, so this would not help support giant insects whatsoever, nor does the water in the air allow it to support more breathable oxygen. So this theory, even if true, fails to explain the amount of species, giant insects, etc.
Furthermore, if this canopy existed, it would make conditions very hostile on earth. As that much water vapor would cloud up the entire atmosphere. First, it would prevent visibility of the sun, moon, and stars prior to the flood. Which Genesis 1: 14-16 makes clear were visible from Genesis day four onward. Second, you need to look no further than earth's neighbor, Venus, to understand what happens when you have an atmosphere that thick. In fact, in order to keep the vapor canopy up for even a short while, let alone the 1000+ years young-earthers suggest before the flood, you would need the average surface temperature to be absurdly high across the planet. Otherwise, the water would just rain down to the surface immediately.
Regardless of the state of the water, the planet only possesses about a third of the water it would take to cover every bit of land on earth. So, this throws most global flood models out the window.
On a side note, there is a variant of this theory that claims the earth had a canopy of ice instead of vapor. This is easily dealt with in that the earth's gravity would immediately bring the ice crashing down to the surface.