One problem is that benzaldehyde is not very soluble in water. Other than that, water should not hinder the reaction. Water, alcohols, and water-alcohol mixtures are commonly used as solvents for aldol condensations. There needs to be some water present to keep the NaOH catalyst in solution.
The product, dibenzalacetone, is insoluble in water. If the product does not readily crystallize from the alcohol solution, you can add a small amount of water to force crystallization of the product.
Steve