I was watching the HSBC Championship last night and saw Rory McIlroy hit a big drive on a par 5 that he pushed right and through the fairway and into a big lateral water hazard. His ball held up just prior to the pond but well within (10 feet maybe) the margin of the hazard. He chose to play his next shot from that point, and chose to go for the green, which was all carry across the pond. He didn't make it. At that point, I realized I wasn't sure of his options so I had to go and look it up. It looks like he has, generally, the same options as he normally would with one minor "difference." He has to recall where his previous shot crossed into the hazard and use that point for proceeding under options 26-1b or 26-1c. He can also choose to replay from the point his last shot PRIOR to entering the water hazard, if he so desired.
Further, there is one extra little caveat ... if he chooses 26-1a and then doesn't like the result of the drop, he can "change his mind" and use 26-1b or 26-1c so long as he adds one more stroke to his total.
Anyways, I think I got it all figured out, but thought I'd post it anyway just in case I screwed it all up.
Also, for the record, Rory chose 26-1b (via 26-2ia) and hit a 3-wood to about 12 feet, and then nearly making a par on the hole.