I think that this has been discussed before. I can't remember the details but I will share what I know.
the only time I have ever heard of water injection is on a huge dodge turbo diesel that has been converted to twin turbo so that it won't melt the pistons. I personally saw that truck push 809hp and 1416ft/lbs on a dyno. I have heard that he could get more by propane injection.
that is the only application that I have ever heard of water injection. also, I am pretty sure that his MPG was crap.
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If you force the engine to run lean using other means (lower fuel pressure, fool the O2 sensor signal, whatever...), water injection can help suppress detonation by cooling and dampening the combustion. But there are plenty of other reasons why water injection isn't beneficial (not to mention that you will have to add a fairly large water tank to your car somewhere, and who wants to buy all of that distilled water anyhow).
The main benefit of water injection is the cooling abilities of it that help suppress detonation. Water/methanol (windshield washer fluid) injection may help a tad more since the methanol can be burned as additional fuel. The suppressed detonation can allow you to run more ignition timing or mill the heads down more for higher compression. I think water injection enables the potential for more MPG rather than increasing mileage itself. I'm experimenting with a homemade water/methanol injection (misting) system on my Metro right now. I'll let you know how it turns out.