Yeah, it must be something specific about the overhead in the Source engine when drawing entities, but it doesn't matter if I render the particles as 2D sprites or as 3D models, both of them have a similar performance impact over not rendering them at all when there's 700, and there's no way it's a hardware limitation.

The GP shared some links below from other indie devs, there is a realtime water simulation that looks pretty dang good, though it looks to be on the scale of a human-sized tub.