The post someone made as a comment covers 2 important issues.
1.) Oil emulsification, as piston seals are never 100%.
2.) It could infact be harming the fuel efficiency of the engine, An engine uses the residual heat to help ignite the fuel thats injected, by getting rid of that heat.. you could infact be lowering fuel efficency of an engine, purely to get it back in the last cycle.
:|
I wouldnt be concerned with the efficiency being lowered too much, as the water injection would partially - if not wholly - replace the conventional water cooling setup of the engine. it can be set up to only come on once the engine is up to temperature, and if the water entering the cylinder is as hot as the regular coolant, then it should have a comparable effect on cooling.
this means the cooling would still take place, but instead of venting this heat to atmosphere via a radiator, it converts it into power via expansion.