It's going to be winter in a couple months and I'm not trying to suck up any water, but what are the drawbacks to having a bypass valve on a CAI? Plus I would have to cut my intake and I really dont want to do that.

The bypass valve wil take the smoothness of you air flow away. I also has been known to such in hot air at higher vac.
The ones that havn't been returned for the recall have potential to lose their form on the inside and stick in your tb and cause your butterfly to get stuck open. That is rare but there is a recall on some of these.
I suggest an airbox.

does the airbox cover the filter part-way to keep water from getting in the filter?

i seriously wouldnt worry too much about hydrolock.. plenty of members are using cais (most w/o bypass valves) and there are more cases of spun bearings than hydrolock... just make sure that you drive carefully in situations where your filter may be submerged.