Very cool! Based on the video you're also doing some hierarchical subdivisions?
The hierarchical subdivision is done only at the rendering steps to reduce the number of polygons. A better rendering would be anyhow required, but I was more curious if the rest of the game would be fine with different and dynamic levels of water. The units seem to behave fine, but due to performance being rather poor I did not polish the code...
Also, the grid resolution required to obtain nice waves was a bit too much for the effort I put 5 years ago (probably needed another thread, etc.)