I don't think a potato gun would be good for water balloons. The shock from the force would pop them in the barrel. Also alcohol doesn't burn fast enough be a good propellant.
I can think of a better method to silently shoot water balloons from very far away...
Buy:
Put the chamber->reducer->valve->barrel together with pvc cement. Drill a hole in the cap just so you can fit the schrader valve through it, and jbweld/epoxy it in place from the inside. When that's dry, attach the cap to the open side of the chamber with pvc cement.
To use, make sure the valve is open by cycling the valve open and shut a few times. Then make sure the valve is closed. Then shove something down the barrel. Use a bike pump to fill the chamber with compressed air to about 60 psi. Disconnect the pump (technically optional) and remember you have a primed cannon in your hands and not some dinky tuber tosser. When you've aimed, turn the valve open as fast as possible. Do not hesitate or the air will fizzle out.