Billysugger:
How certain are you that a displacement sensor will record the wave shape, such that you can measure amplitude? Displacement is not a dynamic variable. You may get a component of the instantaneous wave shape, depending on where you sample the pond water, but you'll also lose some due to flow resistance and inertia.
I can see waves down to about 2mm in amplitude on an oscilloscope. Anything bigger than that is clearly visible. I have no idea how linear the measurement are going to be. Currently the float is inside a plastic tube for mechanical protection so there are already low pass filtering effects due to viscous drag against the wall of the tube and float. I may need to replace the tube with a coarse mesh screen and perhaps add a torpedo shaped extension to the end of the float so that the water doesn't have to turn 90 deg as it rises around the float.