Pool-running form seems to be one of those topics that provokes a lot of debate. The shallow but vast intellectual wading pool that is the internet is packed with those who insist that there's only one correct way to do it.
More on that below, but it's probably best to first discuss the various types of pool-running form, as I see them.
There seem to be three basic types of form, defined by the way the legs move (for each of these, the upper body is more or less vertical, with abdominals engaged):
1) cycling -- it's pretty much what it sounds like. You pump your legs mostly up and down, but with a bit of a circular motion. Knee lifts up, then you push the foot down and back, straightening the leg as you do so.
2) bounding -- you reach out forward with your leg (knee bent at 90 degrees) then straighten the leg and bring it back while straightened, eventually extending the straightened leg behind you.
3) scissor-kicking -- both legs stay straight at all times, and move back and forth like scissors.
Which is best for preserving fitness? I honestly don't know, and I don't think anyone else does either, though you will meet plenty of pool-runners who insist, sometimes forcefully, that one way is best.
[I think that when you're injured and stuck in the pool, there's a bit of desperation resulting in a need to believe that there is a single "best" way to do pool-running, and you are doing that. Or perhaps it's just the natural competitiveness of runners.]
For myself, I've ended up using a combination of cycling and bounding. During easy runs, I swap back and forth between the two, doing 20-30 minutes of the one, then 20-30 of the other. I do this partially to make the time pass, and partially because I think each has pluses and minuses when it comes to preserving fitness for land-running.
When I bound, I focus on the "paw-back", engaging my glutes and hamstrings during this stage. It's actually fairly demanding to do so, as the water provides significant resistance, making this a great way to preserve the strength of those muscles. However, it's also a much slower motion, with a turnover much slower than that of land-running -- this makes bounding less specific to land-running, IMHO.
When I cycle, I keep the movement explosive and fairly quick -- the turnover is closer to land-running though not quite the same (about 160 "steps" per minute, as opposed to my normal 180-190 on land). I do not have my legs cycle evenly, but rather focus on exploding one leg down, firing the glute strongly and pushing through the ball of my foot, while simultaneously bringing the other knee up. Then the other leg fires downward, and on and on. This motion is generally much closer to land-running form, which is why I prefer to use it much of the time (on the theory that part of what I'm preserving in the pool is neuromuscular coordination). However, cycling doesn't put the same workload on the glutes and hamstrings as bounding -- hence shifting back and forth between the two.
There are some notable distinctions between pool-running and land-running (besides the obvious). Both cycling and bounding place a lot of emphasis on the hip flexors, which makes sense when you think about it -- you're drawing your knee up through resistance in the water, while when you run on land, the only resistance for your knee is gravity and air. Your hip flexors get greatly strengthened, while your glutes and hamstrings will lose a bit of strength.
Unlike land-running, the speed at which you cross distance has absolutely nothing to do with how hard you are working. Indeed, in my own experience, I tend to cover the least distance during my hardest repeats. This is probably because I'm focused entirely on effort, and not on efficiency. I'm not trying to be a better pool-runner; I'm trying to stay a decent land-runner while in the pool.
I do note that the distance traveled while pool-running is heavily dependent on the angle of one's body. The more one tilts one's torso forward, the more one's pool-running mimics swimming (more specifically, the doggie-paddle). Of course, you're covering more distance, but I don't believe the workout is anywhere near as effective. When you doggie-paddle, you're emphasizing the arms too much, at the expense of the legs. And that brings me to what I perceive as the one big form risk/error in pool-running...
Overuse of the upper body and arms. It's extremely easy to divert effort away from your legs to your arms, when pool running. The urge is always there to do what you can to cover more distance -- and using your arms means that you travel much further for the same effort.
Thing is, it's the legs that should be your focus when pool-running, otherwise, you might as well swim and reap the cardio benefits from that form of exercise. Thus, the need to constantly remind oneself to keep the arms relaxed and keep pumping the legs -- I find that doing 5 minute bouts where I tuck my hands into the pool-running belt helps here.
So, what's the best way to pool run? Again, I don't think there is one best way. As noted above, I shift between cycling and bounding (I stick with cycling when doing hard intervals, as I think I get my heart rate up higher that way). But that's what has been working for me.
In the end, I feel that what matters most in pool-running is the fact that you're doing it at all. Debating the nuances of one form variant versus another is like debating whether a tempo run at x pace for y distance is better than a tempo of p pace for q distance. The details aren't negligible, but the big picture is still the big picture. If you're out there and pool-running and pushing the effort, then you're getting some benefit.
[even if you're doggie-paddling].