No opacity past waterline
 

I don't know what happened. I liked seeing part of the hull past the waterline but lately that has disappeared. I have installed. TMO, RSRDC and PE2 and LBO. Also I'm getting triangular graphics displacement on screen when looking outside.

I would disable LBO because afaik it is incorporated in PE2 (LBO=>ROW=>PE2). Also make sure to enable Environmental Effects and Volumetric Fog in SH4's graphic options if you want transparent water surface.

Volumetric Fog....
 

....is not necessary for "see-through" water, just the environmental effects option.
I found that volumetric fog didn't do much except screw up my framerate so I switched it off but I am still able to see part of the hull sub underwater etc.

But I do have environmental effects on. Still nothing. So perhaps I should disable LBO.

I had the very same problem, not long ago, my cause, turned out to be corrupted display drivers. Pacifically the Shader2/3 components.
You can find out by running "dxdiag" and running the tests. (I initially found out by running my copy of COD4 -has its own error diagnostic and informs you whats the problem.)

Re-installation of the drivers didn't fix for me, and I had to do a system restore to get back in original "Working" order.

I think Hackett may be right. Tried everything besides that and even getting corruption in graphicls when looking at the sea.