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I would worry about the label working loose. Too much water would loosen the paper and the glue. I had good luck with the damp sponge. You just have to keep it cool not wet. I think if you had a bottle with no label wetting it would work just fine. :)
Mabey you could find some at the thrift store to practice on.
I have a few mini wine bottles I've been wanting to use to make garden lights with. I don't have near enough yet. We only get them when we eat at our favorite Italian buffet. Which isn't often enough.
The large wine jugs are reminiscent of of the jug lamps that cost quite a bit. I'm hoping to sell them for way less than what you find them for retail.