Where did you get those numbers? You're saying that 1lb for this person ~= 700 calories, which is absurdly low, based on my own personal experience as well as everything I've ever read on the topic.
For an "average" person they store 400g of glycogen in their muscles and 100g of glycogen in their liver. In this form, it is bound to 3-4 times as much water. So 500 * 3.5 is 2250g = 5 pounds just from this depletion.
As far as fat burning, a pound of fat has about 3500 calories. A 500 per day deficit will lead to 1 pound of weight loss. However, fat is also bound to water in a roughly 1:1 ratio so you'll also lose a pound of water too. So call this 2 pounds for the second week.
Add in all the weight in your digestive system over that two week period and you'll be ~10 pounds or more in two weeks. Again this assumes a person that is 30+ pounds overweight and has full glycogen stores.
As an interesting sidenote: fat people have relatively a lot less water in their fat tissue than lean people.
You can also think about the fact that when you drop triglycerides in water, it will not solute at all. Also, human body creates fatty membranes (cell walls) to absolutely _prevent_ the influx / efflux of water.