Does anyone know if REX works with DirectX 10, or am I asking a stupid question?
Yes it works with DX10, and it comes with water textures that are specifically optimized for DX10.
There are freeware texture sets available as an alternative to REX, but REX offers so much variety that it is well worth the purchase IMO.
If you want to use DX10, be aware that there may be issues with older addon aircraft (usually AI traffic). UT2 should be fully DX10 compatible, I don't know about the others.