I did something for a top down game, would work for a game like Warcraft2 for instance.
I just had a single sprite for the background, but it was more like a whole island, fading to alpha at the shore, so when the image is overlayed on a water image, the water fades in at the shore. It can of course fade in for things like lakes and rivers.
Then, I used an animated water texture as a backrop, using a caustics image generator. So theres this animated water as a backdrop, then the 'level' is pasted on top, and the alpha fading lets the water bleed through.
It works great, looks awesome, might be just the ticket. If you like, I can upload the project - it's just a test but nothing at all that could be considered complicated.
Health, Ammo, and bacon and eggs!