Wow. Can't believe it's already March. I'm now entering the 16th month of full-time development. When I started this project back in November 2012, I actually thought I'd be done in 3 months...
Anyway, after a very unproductive week and lots of trial-and-error programming, I am finally getting somewhere with the water stuff in the game.
Earlier on Monday, I got the water to look like this:
I won't lie, it's probably the ugliest looking stream around, but the important thing is I got the water flowing and bending. However, there were a few problems here, naming the mesh overlap (the flickering next to the box on the left), and also, the bending wasn't happening dynamically. The redirection boxes were placed there at the beginning of the scene, and could not be moved during playtime. So this was pretty much just a static water stream, which is not what I want.
Yesterday, I went back to the drawing board, and programmed another water stream from scratch. It doesn't even look like water at all, but I got dynamic redirection working, and it's much closer to what I have in mind:
I then added a way to rotate the redirection cube. Right now you just click the left mouse button to rotate the cube, but this might change later on: 
Here's dynamic water bending with multiple redirection cubes together:
Interesting for sure.
Water in videogames is always quite a hard topic, if you want it to do more than just be there, looking nice.
I'm curious about how water will work out in your game, since there's still a lot of work to do.
Water is going to play a really big role in the later part of the game, if I can get the mechanics right. It's hard to explain what's cool in words, as a lot of it is just interesting things that emerge from the mechanics.
However, I'm pretty close to getting the technical stuff right, and once it's almost there, I will put together a video demonstrating some of the cool stuff you can do with water in the game.