IF I was going to (hypothetical question) make 3d island models, draw the models to a scene, render the water over the top and around the islands...

1. Does the water automatically fit around the islands?
2. Is there any way to make the water more transparent as it gets shallower? Like depth fog but constrained to the inside of an object...
3. How can I texture the islands? With one big texture plonked over the top of it? Can I access the water model at runtime and make waves? Will these waves go up and down the beaches of the islands?

If I WAS to go 3d, could I still draw my pritty 2d effects over the top?

thanks for any questions you may be able to answer. thanks for reading this even if you can't help. and thanks for ummm nothing otherwise?