I am more of a Nikonos diver, and as I mentioned the S40 with WP-DC300 casing is only 1 year old.
Most of my photos are still film based, but I have slowly grown to appreciate the S40.
I do not have an external strobe like the DS125 or DS50. I just use the internal strobe for close up shots when I run out of film. I also use it for short movie clips.
For me when underwater, I set the white balance to florescent. Most of the time on f8 and allow the camera to decide the speed. Although I also do go into manual mode when I disagree with camera. The internal strobe also tends to overexpose the subject if it is reflective or has a lot of white, so I have to turn the flash EV down.
The flash gets blocked by the lens barrel and casing at the lower right hand corner, so make sure your subject is no where in that area. You can always just crop off the dark corners.
In my case, I am lucky enough to dive in relatively clear waters with visibility of about 30 feet to 100 feet. Since the subject is generally 1.5 feet to 6 inches away, I do not experience much back scatter.
If I use the S40 for scenery shots without an external strobe, it is HOPELESS! Of course if I go black and white or take wrecks, then that is quite OK. But with only 35mm wide angle, it really cannot give good scenery.
Hope this helps.
By the way, Canon also has a Underwater Photo Guide you can download for free.