You ask three good questions, which the Time article didn't handle very well. We think Europa is covered with ice not just because it looks that way, but because the spectrum of the light reflected indicates a surface of nearly 100% water ice. Different frequencies (of both visible and invisible light) reflect differently depending on the reflecting material, and when you can park a spacecraft (Galileo) with such a spectrometer 200 miles above the moon, you can take very accurate data.

As for liquid water, we really haven't seen any yet. But we did notice that the patterns of cracking and drifting floes of Europa ice look exactly like ice floes in the arctic ocean and off the coast of antarctica, leading us to believe that the ice is about as thick there as at the north pole. but how thick is that? and do you think that if we landed a drilling spacecraft on Europa it could dig deep enough to hit liquid water?

Finally, you raise the point that the media gets excited about anything NASA says that hints at extraterrestrial life. Why? Because it sells magazines. The best I can suggest is that you look at the data yourself and draw your own conclusions: http://www.jpl.nasa.gov/galileo/europa/

A very good question. However, some preliminaries -- water (H₂O) is a simple compound of very common atoms, thus it joins methane (CH₄), Ammonia (NH₃),
Carbon Dioxide (CO₂), pure hydrogen (H₂) and Helium (He) as likely one of the most common molecules in the universe. In the inner solar system, most of these materials are heated to their vaporization point and thus cannot be trapped by small planets or moons. However, Jupiter is about 6 times as far from the sun as the earth and so gets about 36x less light and heat per area, so it is usually much colder. It is not so unlikely that Europa has a layer of ice (and frozen CO₂), but not methane or ammonia since these common materials should be effectively solid at the local temperature.
However, there is another effect going on-- Europa and Io are both very close to Jupiter. So close, that opposite sides of the moons are pulled by differing amounts by Jupiter's gravity. This means that as the moons rotate, there is a great deal of friction as the planet is stretched on different axes.
On Io which is closer to Jupiter, the friction is so great that sulfur is molten on the surface from volcanoes -- over 800 degrees Fahrenheit. The effect at Europa is smaller as it is farther away, but there is a possibility that enough heat is present to melt the layers of ice and other materials within the moon's surface. (The surface would still be very cold unless you happen to be next to a vent to the interior). If this were true, then the "surface" of Europa would be a layer of ice floating on a sea of water or slush since heavier materials would sink to the bottom, and ice floats on water. All this is hypothetical, except that the surface of Europa is very smooth (very small cratering) and seems to be covered with cracks -- which one would expect from suspended ice sheets. Also it has been known for many years that the surface of europa is very bright -- reflecting a larger percentage of the light from the sun than any other planet or moon. This also jibes with an ice surface coating.

There may be small amounts of frozen CO₂ on the surface, but you can't have frozen CO₂ on liquid CO₂ (or many other compounds) since nearly all simple molecules freeze to materials which are more dense than their liquid forms-- so would sink.

On the other hand, there is no evidence for life in such an environment -- unless you count the vent bacteria and life forms (tube worms and crabs) at the bottom of the sea.

There are several places to look for more information, -- you might start at the JPL web site for the galileo probe: http://galileo.ivv.nasa.gov/europa

Astronomers are pretty sure that Europa's surface is covered with water ice. Here's how they figured that out:
You can see Europa from earth because it is illuminated by the Sun. The sunlight is reflected from Europa's surface, and we see some of that reflected light in ground-based telescopes. By examining that reflected light in detail, you can get an idea of what kind of stuff is doing the reflecting - whether it's rocks, water ice, ammonia ice, etc.
If you've ever put sunlight through a prism, you've seen that it contains the whole spectrum of visible light, from red to violet. You are able to see an object because light reflects off of it and into your eye. However, when sunlight reflects off of the object, not all colors are reflected equally well. Some colors are absorbed by the object, while others are reflected. So the light you see coming from this object looks different from sunlight, because some of the colors that were originally in the sunlight are now missing. This is why the things we see have various colors - they each reflect the different colors of light in their own way. To use the technical terms, this pattern of strength of reflection versus color of light is called a reflectance spectrum. By looking at the reflectance spectrum of some unknown object and comparing it to the spectra of known substances, you can get an idea what the unknown object is made up of.
This is basically how it was determined that Europa is covered with water ice. The main difference was that instead of looking at visible light, they looked at infrared light, which the human eye cannot see. [ Here's the reference: Pilcher, Ridgway, McCord, Science, Vol. 178, p.1087 (1972). ] Using an earth-based telescope, they measured the reflectance spectrum of infrared light from Europa. This spectrum was
compared to the reflectance spectrum of water frost, which can be conveniently measured right here on earth. Since these two spectra match pretty well, it seems very likely that it is water ice (or frost) which covers Europa's surface.
The paper referenced above was short and it didn't specifically mention the possibility that Europa is covered in frozen CO₂ instead of frozen water. In order to rule out frozen CO₂, one would have to show that the reflectance spectrum of Europa matches that of frozen water better than it matches that of frozen CO₂. My guess is that this has been done, and that the authors simply didn't have enough space to mention it in their paper. I did see another paper, from 1970, in which the reflectance spectrum of Saturn's rings was examined. A different research group had measured the spectrum and had concluded that Saturn's rings contained frozen ammonia, but the authors of this paper [ Pilcher, Chapman, Lebofsky, Kieffer, Science, Vol. 167, p. 1372 (1970) ] showed that frozen water was actually a better match than frozen ammonia. So you see, it's hard to be certain!
As for the presence of liquid water below the ice on Europa, this is still undecided. The mere presence of ice on the surface doesn't necessarily mean that there's liquid water underneath. It is possible that Europa is so cold that all the water is frozen. However, photos from the Galileo spacecraft now orbiting Jupiter give some
evidence that there may have been liquid water under the surface at some time, perhaps in the past or perhaps even now.
If you're interested in learning more about the Galileo mission, and what has been learned about Jupiter and its moons, there's a lot of information on JPL's website: www.jpl.nasa.gov/galileo .

Everyone believes that there is a layer of ice on Europa because when looking at the highly reflective surface of Europa with an infrared telescope you see a strong signature of water. Frozen carbon dioxide would give a different looking signal. Normally, any water on the surface of Europa should freeze solid because it is so cold there. But there could be some activity under the surface that is keeping the water warm enough to not freeze. What do you think could keep the water warm? Think about similar things you might have heard of occurring in the ocean deeps here on Earth. Can you think of a mechanism that could supply the energy to keep the water warm? What keeps the volcanoes going on Io?

The evidence for water below the ice is circumstantial. There are features on the ice that make it look like there is water slush underneath. I suggest looking at the latest stuff from Galileo on the JPL web page: http://www.jpl.nasa.gov/galileo. They do a much better job talking about it than I could.