MetaBalls parent/duplivert just fine (publisher 2.25) in the particle system, to make the flow for the waterfall parent the particle emiter to a lattice.
create your emitter. create a particle system for your emitter. create a metaball and parent it to the emitter. turn on dupliverts for the emitter in the anim-buttons. voila. But prepare for a hell of a rendering time.
and you can let the particles bend, if you play with the x, y and z forces in the particles menu (lower left part).
I remember how they did the waterfall in episode one. They mainly used animated textures.