How did the conquistadors imagine the "lake of gold" to be like?
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The best approach to this sort of question is to remember that while people of past times knew less than us, they were not stupid. In this case, you can be sure that they knew that a lake of molten gold was unlikely. So what might they have meant?
Most probably a lake with gold lying on the bottom. There are historical records of lakes such as Lake Guatavita which were used for sacrifice resulting in gold (and other) objects being tossed in. (E.g., see this article or this one. (Note that sacrificing valuable into a lake is a widespread cultural phenomenon, and multiple instances in Europe, so it is likely that when the Spanish heard rumors of such sacrificial lakes, they glomed right onto them.)
Another possibility is that they were looking for accumulations of placer gold which is certainly found in streams. It seems reasonable that they may have expected it to wind up in larger quantities in lake, though I don't know of any good references to this. (Why in the Americas and not in Europe: the Spanish were very impressed with the amount of gold the meso-American civilizations had accumulated and probably assumed that that amount of smoke meant there were some very big fires around.)
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