Needs a mod to fix a number of things when swimming underwater. Player needs to be able to cast underwater breathing spell when inside the water, and drink potions when inside the water. There's also no breathing meter. I have no clue how long I can stay underwater and the only notification I get is when I start losing health really fast.

+1, Also I think this bug has been in most beth games, But being a few centermeters under the water level should not let you see underwater clearly!

This is an issue with the shader. It probably works the same way it does in most games, basically applying a fullscreen effect to make it look like you're underwater. There are some tricks in order to make it so the transition is smooth (they do this in Crysis, for instance) but it depends on what information is available to the underwater shader. Unfortunately, getting such a thing working right might involve tweaking how the water is rendered into the scene, and thus might not be possible with shader changes alone.

Breathing meter? - Yes.
Drinking underwater? what? lol
Casting spells underwater? at what? Fish?

Not casting spells at fishes... Reading problem? I said casting underwater spell. And what's wrong with drinking an underwater potion underwater? It's not like you're pouring it in your mouth 10cm away. You can easily remove the lid and drink it without spilling content.

Lol, you must be a regular at the local pub.

Well, regardless of that, if you are capable of underwater breathing, you should still at least be able to cast spells underwater, and there's little reason why an Argonian should be completely helpless when in the water, at that. Maybe taking away the ability to swing a warhammer, but you need to at least be able to use a dagger or something to stab the slaughterfish that is currently burrowing its way through your skull.

As it stands, it's basically impossible to kill some creatures like slaughterfish without just standing at the water's edge and blindly aiming at where the red dot is on your compass.

I gotta agree on this, my Argonian was very displeased when he found he couldnt kill the slaughterfish that was bothering him. :\

Shock cloak kills all slaughter fish... like an electric eel.

Also you can outswim them.

That defies common sense! Or does the dragonborn have the ability to svck out the contents of the potion bottle and create a vacuum?

Theoretically, you could design a potion vial for releasing its contents in a controlled manner when underwater - for example, you could have a leather "throat" near the top of the vial that is clasped/clamped/tied shut to keep the contents in. When you want to drink the potion underwater, you could put the opening to your lips, and release the binding to be able to drink the potion.

It would be complex and expensive for the tech period of the day, but for the purpose of a water-breathing potion, a potion you specifically would expect someone to want to use when they are potentially about to be drowning, it would make sense to take that extra step to make it usable underwater.

(For every problem, there's an engineering solution...)

Daggers underwater would make sense, they're small enough to use. But escaping fish by swimming is just stupid, I hope someone can mod the fish to be faster - and player swimming speed slower... it doesn't have to be 1:1 your running speed, damnit.

But the biggest immersion breaker for me is the view underwater. Have the designers ever been underwater themselves? It doesn't look crystal clear like that. The vision should be wavy, messed up and blurry, at least a little bit. Quake 1 had this right already! Changing the colors to brownish is only half the job done.