It is of course entirely your right to refuse students. However as I've found for my last 2 births, there are very few MWs trained in waterbirth, so the more students that get to see it, the better in my opinion.
There was a student there for dd3's homewater birth, and it was absolutely not a problem
On the day I'd had a bit of a nightmare as there weren't enough midwives qualifed in waterbirth avaliable. In the end I was told I had to deliver before 4pm or after 10pm.... I very calmly explaining that I was going to have the baby in the pool and they'd better sort something out
The solution was a midwife very experienced in waterbirth, who should have been off duty (her shift ended at 4pm) who came with her student. Also present was the second qualified midwife who was interested, but hadn't actually been at a waterbirth before.
The birth went very well, presence of student wasn't a problem, bit of a distraction at the beginning as senior MW was asking her lots of questions and she kept getting answers wrong (e.g. Q. how hot should the water be? A. 60 degrees - she was trying to cook me!) I found it highly amusing it certainly kept my mind of contractions for a bit! By the time it came to deliver dd3 I was in my own little bubble and didn't really know who else was there
I found out afterwards when drinking my cup of tea (supplied by said student!) that dd3's was the first ever birth the student has seen. I felt really proud it had been a lovely calm relaxed natural birth, the way I think birth should be done - at home, in water, no drugs, no fiddling or messing about (no offence intended to anyone who doesn't birth like that, that's what I wanted for me, YMMV).
As it happened there were more medical people present for dd3's birth than for her 3 other siblings combined! dd1 (hospital after transfer from HWB) had one MW, dd2 (HWB)had one MW, second one arrived after dd2! and ds had no medically trained people at all - two MWs arrived 5 mins after him as they took to long to get here!
I don't mean to sound all preachy, sorry! I'll shut up now