There are a couple of possible options here. I agree that you need to raise the water level. I think you could keep the filter, but do whatever you can to disperse the outflow. A vertically-placed brick, for example, or a whole lot of silk plants. Or partition part of the tank with a big rock so the water is quiet in part of the tank.
You could also do without the filter as Azhael suggested. It wouldn't really increase how often you would need to do partial water changes. (You know not to do total water changes, right?) But it might mean that the crud builds up more quickly under the gravel.
Regarding the sand, how did you rinse it? If it wouldn't settle, this usually indicates that it just needed a lot more rinsing. The easiest way is to put some sand in a 5-gallon bucket with a garden hose and rinse the heck out of it. At some point, you might want to consider switching back. I use sand with the same type of filter you have and there is no problem with cloudiness. You will have trouble keeping the crud from building up under the river rock.
And one final thing - how does the cord from the filter get out of the tank? Be sure the tank is 100% escape proof.
Caudata Culture Articles - Escape