I usually keep my water about 1/4" below the sheet. My water is about 3 1/2" deep. I use Plasma Quench, from Koal Industries, as an additive to my water to keep it from stagnating and keep the water from getting rusty and brown. As for the splashing, it's not that bad. A little water gets on the Z axis assembly and some water splashes onto the floor when cutting close to the edge of the table. I suppose you could come up with some kind of flexible shield to reduce the splashing.
Here's a video link of my machine and water table.
Here's a link to my machine thread on cnczone
http://www.cnczone.com/forums/showthread.php?t=42780 (My Recently Finished CNC Plasma Table)