Does anyone know how live lobsters are transported? I saw a truck with "Live Lobsters" written on it, so I was wondering, does that mean they are in water? Because don't lobsters breathe water?

Yes, they are transported in sea water.

Lobsters will drown if submerged in non-airated water. They should only have enough water to keep them wet. As a kid growing up in San Diego, I used to catch them and put them in the bottom crisper drawer, along with the crabs I caught. It would really freak my mom out when she opened the drawer and a big crab was staring at her! They would stay alive 2 to 3 days that way.
The trucks that haul them probably have an airation system as with the tanks you see in restaurants.

I know of the Companny AQUALIFE - who has created a live shellfish transport solution, based on tanks and container loads being shipped over the atlantic. You can find more information on live lobstor transport here: http://www.aqualife.nu

Indeed, the lobsters are usually in live totes (big buckets) that have air stones (aka diffusers) at the bottom of the tote to help the lobsters breath. The diffuster have vinyl tubes that are connected to the trucks that pumps air into them.

Lobster can be transported by truck... The lobster needs to be kept moist and cool. You cool them down to like 42-45 degrees, this puts them into a dormant state. This reduces their breathing needs AND it reduces their excriment. Then, use misters to keep them moist. Water tanks are a very expensive way to transport lobster and due to the weight of the water, very limiting.