Mentioned this at work today. A colleague's Dad has a Prius - it starts recharging the batteries on lift off, and has a button on the gear lever which increases the rate of braking from the motors - so you can coast down hills with two degrees of electric braking before resorting to the mechanical brakes to actually stop. Maybe this could be achieved with some steering wheel mounted buttons?
It could be pretty simple to fit the clutch from the AC pump to the alternator, so it only charges when you activate it - you'd probably want to it an amp-meter and volt meter to keep an eye on how it works, but you could save the engine dragging the alternator round except when you're on overrun or coasting down hill... That would save a little fuel, but wouldn't give much performance.
Given that water is incompressible, maybe that could be used as the hydraulic fluid, compressed against a spring on overrun, an released to give a power boost on acceleration? Water wouldn't make too much mess when it (inevitably) leaks out during the refinement process... Normal coolant would give corrosion resistance.
Sounds like a good scrapheap challenge! They'd probably use an old gas cylinder with a piston inside and a coil spring off a Landy or similar!
If you went down the electrical route, you'd need some serious battery capacity. It would be interesting to hook up electric motors to the rear wheels, save the hassle interfering with the existing drive train... Bonus of 4wd or the winter...