If you do not read anything else on this page, remember this: when a bottle is loaded onto the launcher, treat it the way you would treat a loaded gun. Never let it point at anyone.
Q. Can the bottle burst? What would happen if it did?
A. Although any container holding compressed air can explode, under "normal" circumstances it is highly unlikely. Carbonated beverage bottles are a marvel of modern technology. In two decades and thousands of launches, a bottle has never blown up on me. "Normal" means not going over 90 psi (6.3kg/cm)--which is difficult to do anyhow with an ordinary bicycle pump--and not using bottles that have obviously sat out in the sun for months, getting brittle. I spoke to an engineer who designs bottle-making equipment and he said that 90psi is a safe pressure. High pressure bicycle tires routinely take that much air pressure. I have never seen a middle-school age kid reach a higher pressure than 70psi, and 30 psi is plenty of pressure to still get a great launch.
I do have friends who hook bottles up to electrically powered air compressors and take the pressure way over 100psi. They tell me bottles don't start bursting until they hit at least 150psi. Some of my friends are insane.
As for what happens to the bottles, my crazy friends tell me the bottles do not throw shrapnel but they make a bang so loud it would undoubtedly cause ear damage if you were next to it without hearing protection. I wear ear plugs whenever I go above 70psi just in case.
In conclusion, I would not want my head near a water rocket that exploded. However, I believe the risk of severe injury from someone getting hit by a launched rocket far exceeds the threat from an exploding rocket, which is why I developed this overhead design.
Q. Could the bottle falling back down hurt someone or break a car windshield?
A. A normal, un-modified 2-liter bottle falling back to earth is unlikely to cause injury or damage for the same reason it does not go very high: because it is not dense. It has a lot of surface area for it's small mass and it tumbles through the air, so its terminal velocity is low. Having said that, people are not going to be happy to see a bottle hitting their car.
In thousands of launches with large groups of young kids, a few bottles have landed on someone's head. No one ever cried, but if I launch enough bottles with enough kids, the tumbling bottle will eventually hit a kid with the opening, which is harder than the rest of the bottle, and it might hurt. I will be sorry if that happens, but I am willing to take that risk because I look at it in perspective. When we load kids in a car and drive them somewhere--sometimes for frivolous reasons-- we know there is a small but real risk that the child will be injured in a traffic accident. We balance risk against benefit all the time without thinking about it. I consider being hit by a falling bottle to be low incidence and low consequence compared to other risks normal kids face. I am much more concerned about a kid being hit as the rocket is launched, which is why I developed this overhead design.
However, there is a related issue that you should watch out for, particularly is you are letting kids pump the bicycle pump. Let's say a young kid can only get 10psi of pressure into the bottle. That is not enough pressure to push the water out quickly, and not enough pressure to get the bottle high enough to have time to eject the water. In this case the bottle, still heavy with water, could hurt a kid coming down. That is why I stopped working the type of water rocket that releases suddenly because pressure builds up enough to push out a rubber stopper or something.
Back to your rocket, make sure you help young kids pump the rocket to at least 30 psi or so before releasing and do not fill it up more than half way with water.
Q. What about when you launch water balloons?
A. I developed launching water balloons in response to some...um...creative adolescents who were putting apples on top of rockets just before launching. An apple falling from hundreds of feet was clearly dangerous. Water balloons do not break windshields, but they go so high and are so dense that they sting if you try to catch them. Young kids should have a roof over their heads or not be present where water balloons are being launched. I tilt the launcher toward an empty field or lake. In town, I don't launch water balloons at all.