Water in power steering fluid

A noisy PS pump is one of 2 things: Wear or low fluid.

It sounds like you have enough fluid, so there's a good chance your pump is on the way out, but it is highly unlikely to fail in such as way that it is unsafe to drive for a while (they tend to get louder and louder and steering gets heavier over time)

As for the fluid, it will need changing yes - its possible that the water/fluid emulsion has actually accelerated the wear rate of your pump, leading to the noise.

Where the water has come from... is hard to say as we don't know the car make/model. but if it's not been changed for a long time (ever?) then general condensation will cause this over time, as per brake fluid.

Edited to add: Another cause of "milky" fluid is aeration (often due to low fluid level drawing air in from the reservoir), but that will settle out after leaving for a while.