Why water? Earth would be more suitable for Hydra. Maybe entropy for the whole growing head chaos. Raise the cost, change the element, and maybe make the abillity a little less OP.
EDIT: Hmm...Yeah, flooding would be a problem. I've always noticed that almost nobody uses the flooding card anyway. Maybe you can add: "If in flooding water, this creature drowns and dies permanently"
Suffocate all 'dem heads! It also provides a way for the creature to finally be destroyed permanently.
Just realized that you could use quintessence on the hydra when it first comes out for a perfect counter against it, as long as you don't have a fire shield/buckler.