There are people who are convinced that Waterworld isn't going anywhere because its the highest rated show in the park. However against Potter there is seriously no contest. Fans and people who like the shows come to Universal for WW, but only a certain amount come to the park JUST for it. Its one of those things that people see once they get here, but didn't come for or know about beforehand. I don't blame anyone for wanting to keep it, its a fun show, its probably the best thing to come out of the movie. but they don't sell any WW merch (that I know of, but I could be wrong about that), and it isn't a major money maker for the park. Potter will be. While the majority of guests don't come to Uni JUST for WW, people will be coming worldwide exclusively FOR The Wizarding World of Harry Potter.
Personally the amount of space it would free up would be perfect. The Gibson (Which is mostly confirmed) and WW (which I haven't heard officially yet), plus Curious George (a rumor that seems to be floating around) would be an enormous amount of space and quite enough I think. Unless (alternately) they take out Shrek there just doesn't seem to be any other way to fit it into the park.
(Well, I HAVE heard rumors of them moving back FROM the Gibson, into the tram road and the garages, and re routing the tram tour....but that just seems like a bad idea. Why would you want to hide the area when it could be front and center at the front of the park? Save the back area for expansion space if need be.)
Also, while I really REALLY hope construction starts after HHN, they wont be able to remove the Gibson until after DEC. Its last scheduled show is on Dec. 28....but there has been some prep work already started around that area, Soil samples and such. However, they COULD start dismantling WW in preparation for construction at the first of the year so anything is possible at this point.