Seems like the consensus (with the exception of me) says drink water. I'm gonna say that water dries up in a nervous mouth faster than you can drink it. My first live show, I had a bottle of water and after every drink, as soon as I put the bottle down, I was back to dry again...
I've found that a non-carbinated semi sweet drink like a snapple sits better long term. Even a beer (without getting drunk) helps me tremendously with loosening up the vocal chords - I'm able to hit higher notes without struggle after a beer. Go figure, but it works for me. Also, believe it or not, I sometimes chew gum. Sounds like the taboo of singers, but you can learn to sing with gum in your mouth - strategic placement while singing. Practice makes perfect
As far as forgetting lyrics ~ all I can say is you gotta know the lyrics to the point that you don't have to think about what to sing in the upcoming verses. There comes a point when you know a song so well that the lyrics are just there at your disposal for where you are in the song. If you're having to reach for the lyrics, then you need to practice the song more.
Do open mics as often as you can to get used to being in front of people. You can't get rid of nervousness - you can only learn to deal with nerves. I do open mics once a week (have for the past year now), and I still get a little nervous when I first walk on, but you just start playing and stop thinking, and everything comes together, simply because I've played the material enough that I don't have to think about lyrics - they just come out.
Have fun with it!