I've always used fresh for my QTs but they were for newcomers in smaller 20g tanks. But thinking on it, I don't see why you cant use DT water as you will be medicating it and it should take care of anything in the water.
As for how much water... The more water volume, the more meds will be required. But the volume will be dictated by the number of fish. If you got tangs, I'd probably fill that sucker up.