Nice turning - something I want to try when I get my lathe set up again.
I wonder, given the regular exposure to water, whether a better finish might be to oil the wood (once you've glued the knot in). If you oil it regularly over a period of time, it will penetrate into the grain of the wood and make it more water resistant, whilst still enabling it to breathe out any moisture that gets in. My own experience with synthetic sealers and varnishes is that they don't do very well with water. I suppose the closest analogy would be walnut gun-stocks which are generally oiled (rather than varnished) for similar reasons. Some oils, like tung oil, will dry out faster than others, and you can always thin them a little to help the oil penetrate into the wood.