Cake tins aren't necessarily sealed. Springform tins in particular can leak in a water bath, leaving you with a boiled mess (foil can be used to cover the bottom, if it's big enough in a single sheet without tearing). Some other loose bottom tins can also leak even if well greased.
In addition to these leakage issues (thanks to @Spagirl in the comments) the baking strips are likely to dry out partway through cooking. This means that the outside of the cake reaches (almost) the temperature it would otherwise, but does so more slowly, i.e. at a more similar rate to the rest of the cake. This means it they should allow the expected crust to form (though it may be a little thinner or less brown). This crust is desirable for strength, especially if you plan on applying icing. A sponge (for example) cooked in a water bath has a much weaker crust the same colour as the interior.
All this is because the water, whether soaked into fabric or in a bath, can't get hotter than 100°C. The water bath is unlikely to boil dry in a sensible cooking time, but the fabric holds much less water. So if you want to avoid browning the water bath might work, but the cake will take a very long time to cook through as heat transfer from the base is also restricted. There will be a degree of steaming going on, much more so in the case of the water bath, but that's not necessarily a problem (sponge cooked on top of fruit steams more than that and is good).
By all means experiment, but be prepared for long cooking times and some possible failures (the exposed top could end up cooking very much faster than the rest, for example.