Waterflows simulation

Hi, I have written a Python importer for ESRI ASCII DEM files and it works. Now I want to apply to that terrain a texture that changes with height (using BGE). Also I want to try to simulate waterflows on that terrain and see where the water goes (like a rain simulation, more or less), but I have no idea on how to do that. Can someone help me with some stuff or at least with the texturing of the terrain.
Thanks, Marco

not sure if this helps, but heres a breakdown of how they did water effects and waterfalls in zelda windwaker http://www.polycount.com/forum/showthread.php?t=98578

You can use EasyEmit add-on to make it a splash-like system. It will have most physics, but it wont collide ground. It almost doesn’t affect performance if set correctly!

What exactly do you mean by ‘waterflows’?
I assume ‘waterfalls’, but maybe you mean something different? Like water flowing through the contours of a river?

Show us an image of your terrain, and illustrate what you mean.
The technique for imitating water can vary greatly, depending on how you’re using it.

I have a terrain and let’s suppose that I choose a location I’m interested about. I want to simulate some water to be dropped there and see where she goes.
Additionally I want the user to choose the point of interest. I hope you can figure out what I want to do.
Thanks