cactus, you are right that you will need a ND filter to create that cotton candy effect on flowing water. in bright daylight, even at the smallest aperture, you will not be able to expose properly and keep the shutter speed as slow as you will need. for the full-effect, you need shutter speeds of 1/2 second or a second or even slower. in daylight, you will need a ND filter to get shutter speeds that slow. 4x couts out an awful lotta light, i'd go with the 2x for now.
matt-you're thinking of a grad ND effect being simulated in pshop. a regular ND cuts the light uniformly, while a grad only affects half the frame (for example, shooting right at sunrise or set when the sky would be much much brighter than the ground). you can mimic that effect by creating two different exposures and combining them in PS with a layer mask, but that's way beyond this question. here, he just wants to cut the amount of light down so that he can use a slower shutter speed, not to balance the different brightness levels of different parts of a scene.
damon