I tried to find a source to back up my answer, but I failed to do so.
What I'll try to do here is to put myself in Dr. Manhattan's shoes.
So, we all know that Dr. Manhattan has a large apathy towards human values, his level of consciousness makes him have a very particular look at concepts like death, life, good, bad, and so on.
He definitely has some behaviors that us, mere humans, have as well, but when compared to the average human being, Manhattan displays a much higher level of detachment to "standard" human values.
That being said, for Manhattan, it doesn't matter if someone dies of cancer, flu, shot in the head, or exploded.
A live body and a dead body contain the same number of particles. Structurally, there's no discernible difference. Life and death are unquantifiable abstracts. Why should I be concerned?
That's a line from Dr. Manhattan himself.
What I think Dr. Manhattan is actually doing when he kills the mobsters in that particular scene (and also in the scenes where he kills Vietcongs) is severing the bonds between the molecules that constitute their bodies. For us, it looks like as they are exploding, but this is what might be actually happening.
Manipulating the bonding between molecules is the first thing he learns after his accident as Jon Osterman. Remember the sequence where he fails a couple of times before being able to fully reconstruct his body?
It looks like that for Manhattan, it's easier to sever the bonding between molecules than making that person turn into water or any other type of inorganic material.
I think that also it would take more effort from him to cause, let's say, a rupture in a few brain blood vessels from his victims. A much "cleaner" death, but from Manhattan's point of view, it achieves the same result as "exploding" them.