I've seen water injection as a cooling method (especially in diesel applications), but I didn't reallly give it much thought to add an additional power stroke using the steam generated. I'd be interested to see the valvetrain. I would probably try to inject the water under high pressure directly into the combustion chamber.
On the subject of it freezing (if used in day to day operation), I wouldn't see why it would hurt to mix a little alcohol in to get the freezing point down, but that may be cost prohibitive.