Has anyone else every had a problem with covering a cake with fat free whipped topping? I did a while back and it was totally gross!! I even tried the canned stuff and it just turned into a watery mess too! The cake was cold, so I know it wasnt that.

Do you mean Fat Free Cool Whip, because there is no such thing as real fat free whipped cream. Cream = fat.

Fat free Cool Whip:

http://www.kraftrecipes.com/products/productinfodisplay.aspx?siteid=1&product=4300000287

Fat free reddi whip (real cream in an aerosol can):

http://www.reddiwip.com/products.html

Neither Cool Whip or aerosol cream can be used for icing - it just isn't thick enough to hold its shape, as you found out.
(Unless you want to serve the cake in a bowl and then top with either of the above products.)

You'll need to use either heavy or whipping cream...

Heavy Cream or Heavy "Whipping" Cream is 36-40% butterfat and when whipped it holds its form and doubles in volume.

Whipping Cream has a butterfat content of 30%. It whips but not as well as heavy cream, and will not hold its form as long.

http://tinyurl.com/6zlapt

http://tinyurl.com/254m8k

http://tinyurl.com/5ch6bq

Heavy cream substitute:
(Where whipping isn't required.)

http://tinyurl.com/6bmz3h

Some popular CC recipes for whipped cream frostings:

http://cakecentral.com/recipes/901/whipped-cream-frosting

http://cakecentral.com/recipes/1925/stabilized-whipped-cream

http://cakecentral.com/recipes/7347/amazing-stabilized-whipping-cream

http://cakecentral.com/recipes/3293/whipped-cream-frosting-a-sweeter-version

http://cakecentral.com/recipes/835/electric-frosting

HTH

Ooops! i did mean fat free cool whip!

No. There is nothing more unholy than fat free anything when it comes to cake. Whoever wants fat free should just suck it up and eat something else that is fat free that day.