First - you might have better luck in the DIY dive light forum over at Yahoo -
hiddivelights : HID Dive discussion group. Parts, plans, Ideas for building or upgrading will get you there, and people are generally helpful.
Second - automotive lights are definitely designed for a very rugged environment, and can work well in this application, but, as others mentions, some are sensitive to positioning. There are a few examples out there (and more always on the way) using them to make DIY dive lights. Google will be your friend on that one.
Now, for the nitty-gritty...the cheap ballasts you're pointing out are generally unsuitable due to size. HID systems are three parts - the bulb, the ballast, and the ignitor. The bulbs take high voltage (anywhere from 5kV up through 20kV) at very low current to begin the ionization process in the bulb. Once the gas has ionized and is glowing, the amount of voltage to sustain the burn drops off to a more reasonable level (80-90V, typically).
The function of the ignitor is to get the bulb started, the ballast is to turn the DC into moderate voltage AC to both power the ignitor and keep the bulb burning. That "kick" at startup is why the most common failure mode of an HID is when turning it on (...well, second most common...the first is being an idiot and dropping your light...) and why it's bad practice to turn your light off underwater during the dive.
Most of these cheap ballasts from eBay and the like use an integrated ballast and ignitor, and to function, the unit must be VERY close to the bulb, as the high voltage requires extremely specialized wiring with insulation capable of sustaining the voltage without shorting, and longer runs of wire, even if you found the right type, induce enough stray capacitance in the cable that the ignitor is not able to step the voltage up to the appropriate level, anyway.
The 80-90V is easily handled by just about any electrical cable - many are suitable for use under water, but try to find something that's a solid-core, not a paper or hollow core cable, as it is hard to waterproof the latter.
You can get sets of ignitors and ballasts that are separate pieces - and the ignitor is a very small and compact part. You can then remotely mount the ballast in the canister, run reasonable cabling (anything in a standard can light is more than adequate) to the head, and keep the ignitor and bulb extremely close together (3-4 inches wire, max, is probably okay, and you want to use whatever wire they include.) Many of the new ballasts are very compact; I have an old NiteRider "square" case that handily fits the ballast and some LiPoly packs well. I haven't gotten around to machining a head, yet, that fits the bulb.
WRT the bulb itself, there's really only two types (D1 & D2, of which there are r & s variants) approved for automotive use in the US. Anything else is one that has been cannibalized and "rebased" to retro-fit for use by the type of people who do unsavory things to otherwise fine automobiles...
However, most of those have a more compact base than the D2 series, which takes a special socket. The H1 and H3 series are particularly small, and make good choices for building a lighthead that will take a standard test tube to protect it. It's also easy to find sockets for them at your local auto parts shop or junkyard.
For power, remember to think about your discharge rate. If your bulb takes 35W, and your ballast takes a few (it's a lossy step up converter), figure on around 40W, which is around 3A from your 13.8-14.4 V pack, depending on technology. Make sure that the batteries you choose to power this can support that kind of a discharge rate...for instance, a "small" canister, like a 4.5A one, needs to support a 2/3C discharge rate, which is pretty stiff, and not all batteries can handle that, while living to see another day.
Finally, heat dissipation is an issue with these systems. 35W is starting to get up there to the point where it becomes a concern... Machining a lighthead out of aluminum instead of delrin or PVC would be helpful, and you might seriously consider just how you machine the canister; there are some pretty spiffy aluminum jobs I've seen on the web, and frankly, it seems like a good idea. I haven't run one of these, yet, long enough to have good performance data. For reference, people using the Trailtech 30W system have overheating issues quite commonly, mostly due to inadequate heat sinking.
As one final point - there are some non-automotive 35W ballasts out there (Auerswald makes one in Germany) which are a lot more compact. They seem reasonably hard to obtain, and I don't know their ruggedness or reliability. Worth a look, though, if you want something tiny.
