To my knowledge, there is presently no way to get better looking ripples with MGE's water, though I'd be quite pleased if I learned I was wrong, the non-pixel shaded ripples looked pretty bad to begin with, and they do look quite out of place with the reflective water.
Actually, I just figured it out. You just need the newest svn build of MGE, and the newest version of Phal's water shader, which was released like 4 days ago. There is now a checkbox in the new MGE in the distant land tab for water ripples. The new Phal shader does NOT come with waves as default though, so you have to edit the ingame.fx file. The water shader readme explains how to do that though; i'd never done it before and it was easy. My water now has perfect reflections, caustics, above and below, underwater blur, waves, and awesome ripples during a rain storm. I love it!