If you are not handy with drills or hack saws, then you'll be stuck with whatever housing brand's limitation on what strobe arms systems that can be easily attached to what you decide to get.
I chose the Ikelite system, while it's tray design favors their strobe arms I don't use them. I made my own, but I do use the ikelite ball joints on 1" and 1.25" balls.
If you really wanta know the difference between the Canon cheapie housing vs the Ikelite, take them both down to 100 feet of depth underwater and you'll see the difference in how the buttons operate or not. You'll see that the buttons don't match up nicely on the Canon housing since it's a thinner plastic housing so it'll flex more at depth. Ikelite is my choice even though it's a heavy housing and tray. It won't just hang on one of your BC D-rings like the Canon ones but I'm betting that the photos when using the Ikelite housing come out better.
For the strobe flash shadow problem the diffuser is meant to be used for the close up shots. This is a common problem with all point and shoot housings. Just some housings are more noticeable than others. I DO NOT use the diffuser but instead use the one that blocks the internal flash so my external flash will be the one to light the image only.
I am planning to drill out the handle grip on the Ikelite double handle tray so I can remove it to attach/bolt on my old Nikonos SB101 strobe to the Ikelite tray. When I go back to the needing the double handles I just bolt the handle back on.
Go to http://groups.yahoo.com/group/uw_canon_powershots/ to see what's being done with the Powershot S70 and S80's. They have a photo area you might look at to see how the housings are rigged up.
Good Luck on your choices,
Charlie Eng