“Does anyone know if any state accepts the use of VFD's instead of Pressure Tanks in Water Systems?”
A 1000 gallon pressure tank only holds 150 gallons of usable water at best. Other means of pump control needs to be utilized. In the past, the state of Texas has considered VFD’s an unreliable control for drinking water applications. They would only allow the use of a VFD if there is a backup system in place, including bypass relays as well as adequate pressure tank or elevated storage. There may be other states that allow the use of VFD controls but, I would bet there are other stipulations as well.
“Are there any advantages other than VFD soft start?”
The advantage is that the water supplied by the pump exactly matches the amount of water being used so, a pressure tank or elevated storage should not be needed. However, without a pressure tank or elevated storage, the soft start of a VFD can be detrimental. When the demand increases faster than the pump can get soft started, a negative pressure wave is created in the pipeline which is followed by a pressure spike when the pump does catch up. When demand decreases faster than the pump can be slowed down, the opposite occurs.
“What are the disadvantages of utilizing VFD's in Water Systems?”
Other than what has already been mentioned, all I can think of is harmonics, stray voltage, voltage spikes, electrical fluting of ball bearings, resonant frequency vibrations, nuisance faults, environment control, technical complications, and cost. There are alternatives to VFD controls that do not have these side effects. Thewellguy says he is not a fan of them but, I know thousands of people who are.