The black coating is "Plasti-Dip", possibly one of my favorite things. It's a liquid rubber that drys to form a rubberized coating on pretty much any surface. It's used by R/C hobbyists to waterproof electronics, such as servos and receivers. I used it to coat the MHD drive.
My setup was a tub of salt water and a 13.8V 25A DC power supply. Here are some videos of it in action:
The effects of electrolysis are pretty obvious; I can't think of any way to counter this. The aluminum electrodes wear out pretty quickly. Reversing the electric field (and thus the flow) every now and then seems to help with electrode wear. Titanium or platinum electrodes would probably help a lot, but are also expensive. It was a cool project. Future work will include:
1. Incorporating a similar (probably bigger/longer magnets) into a custom R/C boat or submarine.
2. Using onboard power. I'm thinking LiFePO4 power cells- the high discharge rate would be very beneficial. I think I'll stay away from LiPo's this time. Considering all the H2 and O2 produced, I think there will be enough flammable stuff around.
3. Experiment with ways to reduce the electrolysis and increase electrode life.