Something like this? (only underwater)
I was working on the exact same thing. I did this in HaxePunk but it should work just as well with Flash, but doing this a lot can be quite intensive and maybe slow down your game a bit. Use it with caution.
Here's how you do it:
You basicly have to get the BitmapData of your entities/graphics, then do some manipulation to it with
BitmapData.copyPixels(); For example you could offset all pixels based on a sine curve (which would get you a nice ripple effect, i use something more random where I calculate an Array of offsets with different heights and then animate that downwards to make it seem moving). And then render this BitmapData.
I don't have time to check it but something along these lines:
public function MyEntity()
//Get the BitmapData of your sprite
var mybitmapdata:BitmapData = FP.getBitmap(IMAGE_TO_APPLY_RIPPLE_EFFECT_ON);
graphic = new Image(mybitmapdata);
override public function update():void
//You can also do this in the render() function
for (var i:int = 0; i < mybitmapdata.height; i++) //Go through each row of pixels in mybitmapdata
//and give it a random offset (you could also use sine curve, or other)
mybitmapdata.copyPixels(FP.getBitmap(IMAGE_TO_APPLY_RIPPLE_EFFECT_ON), new Rectangle(0, i, mybitmapdata.width, 1), new Point(FP.choose(-1,0,1), i));
//so we copy a rectange (line) from the original image and offset it by either -1, 0, or 1 pixel
You can also do this to the whole screen buffer, FP.buffer, or group multiple images together in one BitmapData so you don't have to do it individually to each entity/graphic.