Water injection? That's not what you need now. That's for VERY low octane fule or insane turbocharged engines. (or if your ignition is totally messed up)
Nitrogen dosn't burn, it just takes up space in an engine. O2 and the fuel mix is what we want.
As for your air filter, K&N is a re-useable filter. It's oil based, which means that it traps dust and crap in the filter screen with the small molecules of oil. Thats why they sell recharge kits so you can re-oil your filter. K&N's are a little more open than a paper filter so they let more air (and particulate matter) into the engine. The problem with the oil approach is, if water gets onto the filter, it will wash away the oil, rendering the filter more and more useless and allowing dust and other nasty stuff in the engine until you wash it off and re-oil it.
If you have a cold air intake, then most likely you are just ingesting some water and I would look at getting that fixed right away.
I'm a big fan of paper filters... when they get wet, they dry off
Does this happen when you have been sitting still for quite a while or only when your moving?