I don't like watercities because I have 2-4 expansion phases and the option to build watercities in ctp is to late (at this time I build no more cities, because I'm in war with to much other civs).
In civ2 I tried it one time but in the moment I want to build the city on water, so I get an message "Erstaunlicher Weise können Städte nicht auf Wasser gebaut werden" (it says that cities can't build on water). I think a border like this one in civ3 too, but I don't tested it at the moment.