I feel silly having to ask this, but what's the best way to have a vast expanse, such as water, that continues past the area the player can go but visibly extends off into the skybox, seemingly becoming the horizon?

use a terrain with level_loadendless
it's the best idea i have

Close, but I'm trying to make a cluster of tiny islands pretty much in the middle of nowhere. What I'm trying to avoid is having a great big water plane placed in WED, that you can see the edges of before it hits the horizon line...

Try to use a disc. When you don't move too high above the islands you won't notice the edges.
Another idea is to use a vertex shader which always extends to the horizon. You'd only need four vertices here. I think Crysis uses something similar; the sea is actually calculated in view space and thus uses only relatively few polygons.

It anyways will never hit the horizon. Thanks to clipping. What I do is to let the horizon fade into one fixed color and make the whater fade into that same color. While completely reflecting the sky ther basicly does the same, it usually isn´t able to completely hide the transition.

With a shader this would be possible. Or you use a sky dome in front of your water entity in order to hide the transition.