According to the wiki, they are still possible, just harder to make - so how do you make one? Also, is it possible/easy to convert the existing ladders, or do you have to rebuild it completely?
Apparently they still work, but are slower and more difficult to build.
As of Beta 1.5, you are now required to look at the corner between the water and the ladders to even go up the water ladder, and the bottom of the ladder now requires three consecutive ladders without a gap. Going up a water ladder is slightly slower than before, but it's still significantly faster than regular ladders. Also as of Beta 1.5, Minecraft will sometimes recognize the player as "in" the water causing an annoying delay to climbing ladders.
As of Beta 1.6, water ladders are harder to build, slower and more difficult to use, but still allow faster vertical motion than ladders.
Here is a tutorial for 1.5 (at about 2:00 it talks about pre 1.5 water ladders and how to make them work again)