I'm pretty sure the only way you'll get a realistic waterfall is to blue screen one in - even cg guys have trouble with this. Your best bet is stylising it, it'll look more interesting. KY jelly is good for water drops.
For a waterfall I'd definitely use an endless loop of plastic wrap and if it's a tall one then add some spray either in post or with cotton. I'd consider doing the same for the river too, then for drops use either hair gel thinned with water, wallpaper paste, glycerine (whatever that is, I've never been able to source any) or KY jelly.
If the whole world is made out of plasticine, would you actually want realistic water? Or should it be plasticine that suggests water, or something else that is still a stylised interpretation?
So, real water is one option. I used footage of a real waterfall, compositing it onto my polystyrene rocky cliffs, for a couple of short promos. But I have more realistic textures, it's not a plasticine world.
The waterfall footage had dark rock around it and I blacked the edges some more, and used it as a transparency map on a rectangle in Lightwave 3d so the dark areas became invisible and the bright water was visible. Possibly some kind of luma key would work in After Effects or PS.
I also had a cgi "water" surface representing the ocean in the background. CGI water effects are another option used is many films, like Aardman's Pirates.
But one practical in-camera effect for a waterfall that looks close to real is to pull cling film down the waterfall bed, a frame at a time, having it scrunch together as it goes through a slot that is narrower than the roll.
For what its worth... here's an example of using digital hair emulation emitters to create a very stylized water look to be comp'd together with very "handmade" looking live action sets and costumes.
( and its all in 3d too! )
You could use hair gel that has a blueish tint to it. A cool trick could be to use lights shining through glass panels that reflect onto the gel, when you animate the panels it creates a moving reflection.
Stephen - I like that stringy water in the Bjork video. Had never seen it before. Not clay, but equally not trying to look real, and with a flowing motion. Nice bison too.