Umm, water in the engine WILL harm it if it's in liquid form and there is enough of it - water (in liquid form, once again), CANNOT be compressed, so it can cause major issues with pistons, conrods and valves. Want proof, ask Aron (aka R34Liner) and check out what it did to his rods: http://www.skylinesaustralia.com/forums/in...t&p=4509274. I'm sure Scotty knows this, but I just wanted to make sure that no-one else gets the wrong impression of the effects water can have if used in the incorrect amounts.
Of course, water in gaseous form is a lot different, it's the density of cold air that helps us with our turbo'd cars to get better performance - more water in the air means more parts of oxygen. Some people use water injection for just this effect, but it's a matter of balance (and a lot of atomisation) to make sure you're not using too much.