My water lift muffler sits right next to the engine, but out of any standing water... It is below the water line, similar to the illustration (albeit, not nearly as far down).

The hose going to it is stiff exhaust hose, and the hose going from it is also stiff exhaust hose. If you have the anti-siphon loops in line, the hoses and lift muffler are made of pretty tough stuff... I don't see why it couldn't sit in some standing bilge water... it is just hot gas and water that runs through it... and your bilge water is nothing more than the same (less the hot gas).

The biggest issue is the longevity of the clamps at either end. How well will those take constant exposure to standing water?