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I'm not sure that's an accurate comparison. Submerged logs are cold, and virtually oxygen free. Water, in a hole like the above will get absorbed by the wood, and/or evaporate in an oxygen rich environment. I've got a cord of rot around here than wasn't rotten when I split it... Four years ago?

You don't think it's more likely to rot in the very enclosed space? It wouldn't just be a crotch puddle that goes away soon enough. It would also be nicer for habitat if it didn't flood when it rains. Dunno how much water that collects. Might not even be a concern, but that's a fantastic...

So, what about water in the hole; Good, bad, indifferent?

Maybe put a little roof over it :^P I'm sorta serious. Would keeping water out benefit in any way?