There won't be any vehicles operating on water anytime soon.
Hydrogen is the near-term fuel of the future. The methods of extracting hydrogen are varied.
Some of them include on-board reformers which pull the hydrogen from another fuel like methanol or gasoline. This method is being devised (and should be on the market within 3-4 years) to utilize the existing systems for fuel delivery. You could pull right up to your local gas station and fill up.
The other methods use off-board reformers. These systems will have an outside source that extracts hydrogen. Electrolysis of water draws hydrogen but is expensive and time consuming. Reformers like those mentioned above could be placed at gas stations where they would draw the hydrogen from gasoline or methanol.
Hydrogen in internal combustion engines (like BMW has been testing for decades) will probably not take off. Fuel cells (the above mentioned system) are more efficient.