Virtually all water balloons are biodegradable if they are made from latex rubber.
I did some quick Google searching on this, after noticing that my own water balloons were taking years to rot. According to this, and consistent from old leaves I've seen, latex balloons rot at the same rate as some leaves. (Oak leaves according to one source.)
http://www.balloonhq.com/BalloonCouncil/faq.html
From all this, I'd say, go for it, but aim carefully and if any balloons land in the water without bursting (not sure how normal that is), pick them up and reuse them. I am not sure how balloon bits affect wildlife in both ground wars and in the water before they decompose, so I take it's best to pick them up when possible. However, studies that have been done have not reported any wildlife choking on or otherwise being harmed by water balloon bits. I don't take that as a green light to go crazy and drop water shells everywhere like it's the first worldwide water war, but it also cuts me some slack if I miss a few bits while cleaning up.
http://www.google.com/search?sourceid=c ... 64&bih=663
Watch your CPS's. Some kinds of water are not good for CPS bladders, though I've used a Flash Flood on a lake before years ago and it's bladder is just fine now. (However, all sorts of other parts of the blaster dropped dead, but I bet most of that was due to bad design.) I'm probably just being paranoid with natural water sources, but it doesn't hurt to be sure. It's strange because some water safe to swim in is unsafe for CPS's, and some water safe for CPS's is unsafe to swim in.
Paddles make good splashers. I would take pedalboats over canoes, but canoes work too.
A little know-how on water blaster modification will help you a ton here. With a little creativity, you can hook each blaster to a tube that goes directly into the lake and have an endless supply of water. Just pump away, and unlike the Stream Machine, the conventional water blasters don't have to be dipped into the water. Last, but most obvious, be dead-careful not to lose blasters to the lake. Easy to say and easy to tell yourself, but out there it's a real risk. If you're paranoid about this, you can tie/tether all blasters to the boat without too much trouble lol.