Ok, so I'm back after a 2 day non game developing hiatus due to travelling..
Congrats on the landmark post.

I had the hair working before I left. The system I use uses GetNearestSprite for the calculation of forces acting on the hair (I have sprites that act on the hair like the forces of wind resistance, inertia)
The solution I had worked pretty fine. Things are somewhat realistic, and it uses multiple forces to determine the center of motion (Like a pendulum) and the force of gravity, all things that you can learn from a 9th grade physics class.
Hair strands are comprised of particles that disintegrate after a short lifespan and are pushed towards forces like the force of gravity, normal force, and somewhat simple harmonic motion
The best part is
I took the concepts of forces on realistic hair
But I only touched the concepts on the water's surface. I didn't have to dive deep to use a single line of complex math to do this (Disregarding sprite conditions)
For some reason or another, the lines drawn are a light grey, instead of the LineTo()'s chalk white. I'm going to look into that. I'll also upload a video for approval to see if it looks somewhat decent.
Edit: I made a video of what I had so farhttp://www.youtube.com/watch?v=Egqt1GKVWG8&feature=plcpI need to fix the grey and allow dynamic tinting of the lines, and I need to find a way to position the lines drawn behind the sprites of this layer (Which is hard because the hair/line drawing happens after the rest of the layer is complete drawing. But the best part about using 3D space is that I can simply position the lines behind the sprites with the Z axis

)
Don't let Fraps fool you. The FPS is fantastic!