For clarification: Hydrogen isn't a source of energy, merely a way of storing it Hydrogen fuel cells (the technology they are trying to power cars with) consists of the water and oxygen being separated into separate areas of the "battery". They are allowed to come together in the presence of a catalyst. Because the molecules have a charge, the charge is passed on through the catalyst and generates an electric current which can be used to drive an electric motor.
http://en.wikipedia.org/wiki/Image:PEM_fuelcell.svgThe problem with the technology is that the catalysts we have today are either inefficient or expensive to produce and their effectiveness diminishes over time.
You still need to separate the Hydrogen from the Oxygen before you can use it as a battery. This requires electricity. Electricity has to be made at a power plant somewhere (usually produced from burning coal/oil/natural gas) and traveling along inefficient powerlines.
The technology shows promise, but it requires time, effort and most of all money invested into it before it becomes a safe and environmentally sound solution.