iPhone 4 water damage - how to recover data?
Yes - programs like PhoneView can often read files from a device that iTunes insists must be restored. The iTunes function is to sync and clearly the OS is now in a state where it can't run itself or be updated, so the "correct" thing for iTunes is to ask for a restore.

I wouldn't say that you are guaranteed to get the photos back, but it's good you have the computer where the device normally syncs as that will have the encryption keys to unlock the storage if the device has data protection enabled.

You could also seek a quote from the usual data recovery services like:
- http://www.drivesaversdatarecovery.com
- http://www.krollontrack.com

You should expect to spend hundreds of dollars if you send the device in for recovery and you may have to pay if they recover anything - even one partial file - so be sure you understand what is being quoted before agreeing to a recovery attempt.