I make sure the students understand the idea of adding water as it relates to the laws of motion. It seems that the ideal amount of water is about 1/3 of the bottle but encourage the kids to experiment.
I bring out the Eggstronauts with much fanfare and excitement... its fun to turn it into a goofy event. The teams submit the rocket and eggstronaut hatch for entry. Once the water is added and the egg in place we launch. Make sure the kids are well back. sometimes the rockets go sideways. The most concern for safety comes when a team builds a really accurate rocket. This means the rocket is going to come down pretty much where everyone is standing. If this happens i get the kids to all make sure they have a back to the wall of the school... This really cuts down on the danger level. Do not let kids run after the rocket until it lands. They have a really solid punch... sometimes they leave holes in the ground.
The biggest concern for me has turned out to be the least. I was worried at first about the bottles exploding. After accidentally exploding a water bottle and a compromised pop bottle on two occasions I can tell you the only danger is the embarrassment of needing to clean your shorts afterward. It explodes with a very impressive gunshot that scared the heck out of me both times. My guess is that the material is so light it has very little momentum and doesn't cause damage other than evaporating whatever is attached to the bottle. Its pretty impressive!
I give a basic mark related to the design... it needs to look like the rocket when finished. I also give marks for accurate flight and height and a bonus mark for eggstronaut survival.
Try this project! I've done it for years and i have 20 year old ex-students come back and tell me they learned more with the rockets than half their science classes. As a shop teacher there really is no greater compliment.