Sino is an elegant way to provide a non-obvious alternative to a negative statement, without having to start a new sentence.
To avoid confusing it with pero, try replacing it with although–if it works, it's pero; otherwise, it's sino.
> — Me apetecía verte hoy, pero hasta mañana no puedo.
> "I felt like seeing you today, (but/although) until tomorrow, I can't."
> — Pues yo no contaba con verte hoy, sino mañana, así que perfecto.
> "(Well) I wasn't counting on seeing you today, (but/I was counting on seeing you) tomorrow, so that's perfect."
I go deep into the usage context of sino in this NachoTime post.
From what I understand, both "pero" and "sino" indicate mean "but." However "sino" is used when 1) there is direct contrast and 2) the first part of the sentence is negative. This sentence directly contrasts water and wine and has a negative clause in the beginning. One way I remember it is that "sino" can be translated as "rather, instead" but "pero" cannot be. "I do not want wine but rather water" Hope that helps! See source link for more examples: http://spanish.about.com/od/conjunctions/a/sino_pero.htm
Like so many other points where a Spanish idiom has no obvious parallel in English, we are left to fashion a translation based upon English idioms. Sometimes it's successful, sometimes it's not. Duo can't easily incorporate them all.
While I commiserate to a certain extent with what you've proposed, I doubt Duo will ever agree. I recall using "just" instead of "only" in another version of this sentence. Duo didn't like that one either. Using "only" works in a hospitality context where water is already given or the automatic default. More generally, "only" may not make sense as a translation for "sino."