It actually does not need water to fall onto it you know?
It just needs water touching it. Also there shouldn’t be any woodblocks that do not belong to the waterwheel too close to it while it is trying to form, since it does check a box around the main Block and does not look for a path of wood from the main block to potential waterwheel blocks (flood fill is expensive…).
So any foreign wood block might block the forming of the waterwheel because of it’s rotational symmetrie check…
I’ll test the power transmission once more. But last time I checked it was enough for a bronze auto hammer, which was my intended use case for it, since I didn’t want people setting up massive farms of waterwheels.