Using two wires to detect water - making your own water sensor

If you are using a battery, which is an isolated supply, then it doesn't matter if either side is connected to ground, as long as both aren't (and thus shorting it).
As for the electrodes, either way works capacitive or resistive, as long as it is distinctive.

You could always order something like: http://www.omega.com/googlebase/product.html?pn=LA-13&gclid=CL-ptZGW2b0CFS1eOgod_i4AcQ