I took a very similar course, and we were taking a course in Rendering at the same time. Most people in my year ended up using their physics simulations to demo their rendering and vice versa.

I went down the route of fracture & deformation rather than fluid sim route, and ended up implementing [0] (or, some amount of it. As you mentioned, the numerical stability aspect is tough).

[0] https://escholarship.org/content/qt7ct56944/qt7ct56944_noSpl...