I agree with all the wonderful things written by all of the waterbirth mommas so far, but just want to add something about the temperature of the water. It is important to monitor the temperature of the water and keep it fairly warm (I don't know exact temperature offhand, but I think it was in the Mothering issue a few years ago that focused on waterbirth). If the water is too cool, it may prompt the baby to take it's first breath while it is still underwater. The way I understand it, temperature change is the major thing that will prompt the baby to take it's first breath - whether it is temperature change when the baby is taken from the warm water to the surface, or when the baby is born from the warm mommy to cool water. The water should be approximately the same temperature as the mommy.
I speak from experience - I had a wonderful waterbirth with my second child, and intend to birth all future babies this way, but her first moments were a little tense because she breathed her first breath underwater, and then would not breath once brought into the air. She had to be "bagged" by my midwife, but after a few moments of heavy stimulation, she came around, although much slower than a new mommy likes to see! I know that the water had grown pretty cool by the time that she was born, and I am sure that played a role in the problems. After all, who doesn't gasp when suddenly placed in cold water?!?! Needless to say, I will be carefully monitoring the water temperature at my next waterbirth! But that said, even with the "underwater breath" problem, I never felt that she was in real danger - just made those first moments more tense that I would have liked.
Waterbirth is a great way (and only way, in my opinion!) to have a baby. I never intended to have a waterbirth, but once I got in the water, there was nothing anybody could do to get me out. I've had babies both in and out of the water, and I have to say weightlessness is the way to go. Makes contractions much less intense, and pushing a breeze!
Sorry so long, hope I've been helpful...