I thought this might be useful to a few people out there doing some 2D sprite based stuff with water involved.
https://github.com/valryon/water2d-unity
Here he explains the shader and the implementation.
http://dmayance.com/water-surface-2d-unity/
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Shameles plug 
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Looks nice. Basically you can do this with some kind of texture/rendertexture and something resembling a normal map or a couple of bump textures of some kind blending together.
It would be nice to reconvert the distorted output back to pixellated, dynamically.