> Unfortunately compressed air is very hot and difficult to store.
Not OP but a few comments on what you just said. If you ever tried to manually compress air in a metal pump (say when inflating a bicycle tire), you probably noticed that the outside of the pump gets very hot when you press down. That is because gases have a property of increasing their temperature when pressure increases. So now in order to maximize your ability to store energy efficiently, you are facing two problems: (1) how to prevent gas from escaping, (2) how to prevent heat from dissipating through pipes/pistons. It looks like OP had managed to solve (2) by efficiently capturing the heat using water vapor, though I'm not sure about specifics.
Water actually has the highest volumetric sensible (no phase change!) heat capacity of any substance on earth.
We don't rely on water vapor -- the problem is that at low temperatures there's very little vaporization that can even take place. This limits the heat transfer. Though there are alternative approaches that use this effect more fully.
Not OP but a few comments on what you just said. If you ever tried to manually compress air in a metal pump (say when inflating a bicycle tire), you probably noticed that the outside of the pump gets very hot when you press down. That is because gases have a property of increasing their temperature when pressure increases. So now in order to maximize your ability to store energy efficiently, you are facing two problems: (1) how to prevent gas from escaping, (2) how to prevent heat from dissipating through pipes/pistons. It looks like OP had managed to solve (2) by efficiently capturing the heat using water vapor, though I'm not sure about specifics.
Water vapor sounds like a good (if obvious) solution since water has the third highest specific heat capacity of all liquids, after ammonia and liquid lithium (http://en.wikipedia.org/wiki/Heat_capacity#Table_of_specific...).