A while back, mind you; I was obsessed with the fact of making an unbeatale (sorry about the bold claim) underwater interior ala Bioshock yet fantasyish.
While on the IRC just refreshing my ideas a bit I had some additional ideas, because that is what the project lacked a nice set of ideas and where it all fits in.

My idea is to make an underwater Telvanni settlement. Their biopunk nature is perfect for this. Imagine huge coral like structures inhabited by mighty Telvanni.
There are many more concepts that could be taken from the bottom of the sea and tuned by a Telvanni mage to suit their needs for an underwater city, time to
collect referance and inspirations?

Feature set that I had in mind for the project:
*Water dynamics, interiors that have water that can raise and lower and objects that float up and down with the tides.
*Objects are mostly interactable. You can push them. Jump on them and they will dip down I did some script testing with similar stuff.
*Water pouring down walls via animated textures.
*Breakale glass; when broken water will gush into main interior. this is a tricky one.
*Interior underwater atomspherics. So far having a vauge blue hue and having fishes that essentially fly on the outside of the windows make a pretty good estimation.

Now then. I don't know when I will get down to this project but I wanted to type it down so that I don't just forget about it. I had some limitations last time that I don't think
I will have as much problem with now. Animated textures and breakable glass were two main gripes that I think will be easier now.

Maybe after my misc models pack is released I can muse with this idea for a while. To challange myself I will try to keep this one within lore as much as possible.
So any input and ideas from lore nerds are welcome.

Thank you for your time.
Mireneye

I like the idea, and in fact, I'm already doing something similar. I have an underground facility that is underwater. It isn't quite as interactive as what you are proposing, though. It just has airlocks, bubbles, and "underwater" sounds. I may put a few floating crates and bottles, but that's about it.

Altering the water level, and associated statics, is fairly trivial. My airlock code could do that with some minor modifications. Alternately, and perhaps even better, is to put a script on the object you want to "float", and have it monitor the water level itself.
Making things bob is already implemented. Just attach the script to the item you want to bob.
Making a cell appear to be below water isn't hard - I'm doing that now. There is a bubble emitter that works great for this, though I'm trying to tweak the bubbles.

About the only thing you mention that might be tough is breakable glass. I have no idea how to implement that.

Sounds like a fun mod idea, though.

Sounds interesting. I'm always looking for something new for my Kheran to explore.

Sounds interesting. I think a number of underwater projects have popped up simultaneously. This isn't a bad thing, I'm just saying it could be very interesting.
And I wouldn't lose much sleep over derailing the lore train. I think it's halfway there already.