pk3DS currently does not disallow water types on land, nor does it enforce Water/Flying only on Water encounters either. I may have to come up with a separate 'randomizer' as there currently is no slot based restriction.
Currently pk3DS (without randomize by BST) uses a random list with all selected species (ie, gen1, gen2, or combined gens) and cycles through. The default settings allow for every Pokemon to be encountered.
If a Trainer has the setting 'no custom moves', the game will do exactly what you described: inherit the latest (at most 4) moves from the level up list by default.