This is a matter that has been raised quite frequently as regards to the passage in question.
The Quran says in Surah Kahf (Chapter 18), verse 86 that the sun sets in murky water. This is unscientific and the Sun never sets in water. What does the verse mean?
Scientifically it can also be argued does the sun ever set? We know that the setting of the sun and rising of the sun is merely a perception of the rotation of the earth. However, this phrase is allowable in common modern speech.
However, let us have a look at the verse and the word used in Arabic.
“Until, when he reached the setting of the sun, he found it (Arabic: wajadaha) setting in a spring ofmurky water: Near it he found (Arabic: wajada) a community: We said: “O Dhul-qarnain! (you have authority,) either to punish them, or to treat them with kindness.”
The experience of Dhulqarnain as regards the sun setting has been described as ‘Wajada’ which some of commentators translate as ‘found and others as ‘appeared’.
The word ‘Wajada’ is not restricted merely to mean ‘found’ in the literal sense (as has also been used in the same verse) but also denotes a perceptive nature. It is not a stretch of any language to say that one found the sun setting in the sea at sunset. This does not mean the sun actually sets in the sea which would be a preposterous idea even to the most ignorant of people. It merely denotes the perception of the setting which is proved by the oldest lexicons which capture how the word was in use and understood by the Arabs to which the Quran was revealed.
However, no doubt some of the fanciful ways in which this passage has been interpreted by early Islamic authorities can be seen even amongst the earliest of historians for example, Ibn Ishaq who captures a poem by Tubba.
And left those men an example to the discerning.
Dhu’l-Qarnayn before me was a Muslim
Conquered kings thronged his court,
East and west he ruled, yet he sought
Knowledge true from a learned sage.
He saw where the sun sinks from view
In a pool of mud and fetid slime.
Before him Bilqis my father’s sister
Ruled them until the hoopoe came to her. 
Here is what the Orientalist scholar, Alfred Guillaume himself had to say about the complete poem (which this section is a part) in the earliest Biography of the Prophet by Ibn Ishaq (Translated to English by A Guillaume).
“This poem is spurious; it is not difficult to see how Ibn Ishaq persuaded himself to incorporate such an obvious forgery in a serious historical work. At this point Tabari introduces a long passage from Ibn Ishaq. A much longer story via Uthman b.Saj given by Azr.i.79” 
 LANE. E.W, Edward Lanes Lexicon, Williams and Norgate 1863; Librairie du Liban Beirut-Lebanon 1968, Volume 8, Page 2924
Highlights marked in red on the lexicon excerpt are my own insertions. They have no bearing on the original text other than they emphasise relevance to the topic at hand. These are merely illustrations and have solely been utilised for educational and explanatory purposes.
 GUILLAUME. A, The Life of Muhammad: A Translation of Ishaq’s Sirat Rasul Allah, Oxford University Press, Page 12
Refuting a repetitive missionary allegation
Although we keep answering accusations of Christian missionaries against our religion and Scripture, they vehemently keep parroting them again and again as if we have not answered them already!! Jesus is reported to have said,
“Judge not, that ye be not judged. For with what judgment ye judge, ye shall be judged: and with what measure ye mete, it shall be measured to you again. And why beholdest thou the mote that is in thy brother’s eye, but considerest not the beam that is in thine own eye?”
We will show here that what is in their eye is not just a beam, but a big wedge! Well, among the issues whom Christian missionaries use to object against the Holy Qur’an is the following passage,
“They ask thee concerning Zul-Qarnain. Say, I will rehearse to you something of his story. Verily we established his power on earth, and we gave him the ways and the means to all ends. One (such) way he followed. Until, when he reached the setting of the sun, he found it set in a spring of murky water: near it he found a people.” (Holy Qur’an 18:83-86)
Their objection is that how sun could set in a spring of murky water while it is over billion times greater than earth and can never set in a spring of a murky water! They persistently confront us with this objection in all their arguments concerning scientific aspects of the Qur’an.
Well, we are going, insha’Allah, to answer them. I begin and quote the following biblical verse,
“Are they not on the other side Jordan, by the way where the sun goeth down, in the land of the Canaanites, which dwell in the champaign over against Gilgal, beside the plains of Moreh?”
As we all know there is no way where the sun goes down because the sun is over billion times greater than earth . etc.. while if the meaning is that it is the way where it appears to people that sun goes down in, the objection will be solved. But certainly they accept such explanations for their Scripture, not for ours! Moreover, the verse is very clumsy as one of our Arab brothers notes ,
The text as you see is extremely clumsy as if he describes the address for a lost person: Where-the-sun-goeth-down St., Canaanites’ City, leave the first plain of Moreh, right against Gilgal!
Let’s move on to another verse,
“The sun shall not smite thee by day, nor the moon by night.”
We quite understand what is meant by the sun smiting someone, but what is meant by moon smiting?! Is there anything known – for example – as moon stroke?! Perhaps we should know!
Our last biblical quotation is this,
“And there appeared a great wonder in heaven; a woman clothed with the sun, and the moon under her feet, and upon her head a crown of twelve stars.” (Revelation 12:1)
How can a woman be clothed with the sun which is over billion times greater than earth?!! This is indeed mythical!
Now, we leave the Bible to discuss the objection of the missionaries. The verse says, “he found it set in a spring of murky water” i.e., according to his vision and sight that’s why Allah does not say “it is setting”.
Imam Al-Baidawi notes,
He probably reached shore of the ocean and saw it like that because there was but water at the furthest of his sight that’s why He says “he found it set” and does not say “it sets”. (Al-Baidawi, Anwar-ut-Tanzil wa Asrar-ut-Taw’il, Volume 3, page 394. Published by Dar-ul-Ashraf, Cairo, Egypt)
Imam Al-Qurtubi states,
Al-Qaffal said: It is not meant by reaching the rising or setting of the sun that he reached its body and touched it because it runs in the sky around the earth without touching it and it is too great to enter any spring on earth. It is so much larger than earth. But it is meant that he reached the end of populated land east and west, so he found it – according to his vision – setting in a spring of a murky water like we watch it in smooth land as if it enters inside the land. That is why He said, “he found it rising on a people for whom we had provided no covering protection against the sun.” (Holy Qur’ân 18:90) and did not mean that it touches or adheres to them; but they are the first to rise on.
Al-Qutabiy said: Probably this spring is a part of the sea and the sun sets behind, with or at it, so the proposition takes the place of an adjective and Allah knows best. (Al-Qurtubi, Al-Game’ le Ahkam-el-Qur’an, Volume 16, page 47. Published by Dar-ul-Hadith, Cairo, Egypt. ISBN 977-5227-44-5)
Imam Fakhr-ud-Deen Ar-Razi states,
When Zul-Qarnain reached the furthest west and no populated land was left, he found the sun as if it sets in a dark spring, but it is not in reality. The same when sea traveler sees the sun as if it sets in the sea if he cannot see the shore while in reality it sets behind the sea. (Ar-Razi, At-Tafsir-ul-Kabir, Volume 21, page 166)
Imam Ibn Kathir states,
“Until, when he reached the setting of the sun” means he followed a certain way till he reached the furthest land he could go from the west. As for reaching the setting of the sun in the sky, it is impossible. What narrators and story tellers say about that he walked for a period of time in earth while the sun was setting behind him is unreal, and most of it is from myths of People of the Book and inventions of their liars.
“he found it set in a spring of murky water” means he saw the sun according to his vision setting in the ocean and this is the same with everyone ending to the shore seeing as if the sun sets inside it (i.e. the ocean).
(Ibn Kathir, Tafsir-ul-Qur’ân Al-‘Azim, Volume 5, page 120. Published by Maktabat-ul-Iman, Mansoura, Egypt)
I believe this is adequate to refute the missionaries’ imposed interpretation. And to Allah is the Judgement in all affairs.