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If the sense probes were in the water a lot, you are putting 12 volts on them and electrolysis would be an issue. But, the probes of course are dry most of the time.
One other completely unimportant note about using AC beside elecrolysis. With the DC circuit, you are essentially measuring impedance between the nodes and the impedance of water can vary by a factor of 1000 from fresh to salt. If you had very clean fresh water in the bilge from rain (and your bilge was very clean to begin with), would the detector still work? No doubt it works with salt water.
But with AC, the circuit could be set up to measure capacitance. The capacitance of the nodes in salt or fresh water would be close to the same value and the capacitance between the probes in air and water would differ by a factor of 80 - easy to detect.
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