YES - they do work underwater...
dixieangler,
Took my first underwater photo with my "Waterproof Pentax Optio 6.0 Megapixels" this afternoon. Danged trout wouldn't cooperate and got his bottom half only in the photo. Need three arms for this kind of operation. Couldn't remember how to set it to the "underwater" mode till I got back home; so, just plunged 'er under and hoped for the best. Danged manual is 135 pages long and I need one that's about 10! Got it mainly for wet outdoors days and not necessarily for underwater photos. But, that's a nice bonus. Enjoy...it's a great camera.
Another new waterproof digital by Olympus
There is another new waterproof digital that has come out on the market that is also shockproof with a higher megapixel. Probably more expensive also :). Some folks that have had them have said it still has teething pains (early problems to work out like size and ergonomics).
Specs:
The Olympus Stylus 720SW, a waterproof (to 3m) 7.1 megapixel camera that is also 'shock-proof' (resistant to falls from up to 1.5m). Boasting a maximum ISO of 1600, a large 2.5-inch screen and a 3x optical zoom, the 720SW is available in an array of colours; Dusky Pink, Polar Blue and Steel Silver.
http://www.dpreview.com/news/0601/olymp ... tback-.jpg