I feel that using distilled water for bread is _probably_ like using 
distilled water for making coffee.  I did try using distilled water 
at one time, thinking that maybe my tap water is over-chlorinated and 
that is making my yeast less active than it should be.  I have since 
decided that the reason I wasn't seeing as much yeast action (crumb 
was too dense) not because of the water or because I was not getting 
enough gluten development, but rather it was because, well..., I just 
wasn't using enough yeast!
I was following recipes religiously when I should be 
experimenting.  My yeast, my flour, my water, my oven, my 
Kitchen-Aid, my weather, etc. are all quite different from that of 
the recipe author's and it'd be ludicrous to stick exactly to the recipe.
All that said, while I now think that water can do little to _improve 
the dough or the result, ill-tasting water does negatively affect the bread.
Andy Nguyen