The loss of steering when the engine cut is obviously down to the engine not turning the P/S pump. As for why the engine cut, it looks like you've got people who probably know more than me on the case already. What I do have some prior experience of is P/S cutting in the wet with motor still running happily. What state is your P/S belt in? Is it reasonably well tensioned up (don't go too mad or you'll mash the pump bearings)? Also, do you still have the splash guard around the belt to protect it from getting wet?
S.M.