We use thermodynamic integration (TI) and explicit solvent molecular dynamics (MD) simulation to estimate the absolute free energy of host-guest binding. In the unbound state, water molecules visit all of the internally accessible volume of the host, which is fully hydrated on all sides. Upon binding of an apolar guest, the toroidal host cavity is fully dehydrated; thus, during the intermediate λ stages along the integration, the hydration of the host fluctuates between hydrated and dehydrated states. Estimating free energies by TI can be especially challenging when there is a considerable difference in hydration between the two states of interest. We investigate these aspects using the popular TIP3P and TIP4P water models. TI free energy estimates through MD largely depend on water-related interactions, and water dynamics significantly affect the convergence of binding free energy calculations. Our results indicate that wetting/dewetting transitions play a major role in slowing the convergence of free energy estimation. We employ two alternative approaches-one analytical and the other empirically based on actual MD sampling-to correct for the standard state free energy. This correction is sizable (up to 4 kcal/mol), and the two approaches provide corrections that differ by about 1 kcal/mol. For the system considered here, the TIP4P water model combined with an analytical correction for the standard state free energy provides higher overall accuracy. This observation might be transferable to other systems in which water-related contributions dominate the binding process.