I think this issue involves the drain line from the AC/heater case to the outside. My case wasn't leaking, in fact it held water tightly right to the top. The problem is that the drain line is either pinched or clogged, and the condensate has no where to go. Every time I went around a corner the water in the case would slosh around and leak out from somewhere onto the floor, like driving around with a full fishtank. Once I stopped using the A/C and some over the water sloshed out I had no more leaking. I'm sure there's still water in that case, just not enough to slosh out when I go around turns. If I turn on the fan for a sec I can hear it hitting water. I don't think the thing is supposed to hold any water, it's all supposed to drain out right away.
My car is at the dealership right now, I'll see what they say when I pick it up after work. I'm a little paranoid, first time to the dealership and I've read to many horror stories on this board about bad dealer service experiences. Anyone have experience with Somerset Subaru here in central NJ? Didn't buy my car there but it's the closest, most convenient dealership for me. On the good side I don't think I'll be needing any new carpet, I got most of the water out of the footwell right away and the remaining dampness dried the next day when I was driving around with the windows down. No funky smells or anything yet. I asked the dealership to check though and make sure the insulation and whatnot under the rugs are dry.