awmace5,
You do indeed have a memory leak. Your Water sprites are not being destroyed and are accumulating at a rate of approx 30 per sec (I stopped the debugger after a few secs with more than 1500 of them....). I didn't see 30 appear on screen each second, so there's a bit of unnecessary cpu work going on there (perhaps only spawn them where they will then be seen) and the hit-solid-destroy system doesn't seem robust. You could do this a couple of easy ways - the quickest would be to add a Fade behavior to them that is active on start and then time them to fade out after, say, 5 secs - where they will be off screen or already destroyed by what you have in the events already.
Edit - I just tried the adding Fade behavior and it doesn't work. There are just too many Water sprites... I suggest only spawning them where they will be seen and then destroying them when their y value is > layoutHeight + a bit.
Edit 2 - The above y value check works and caps their number at ~120 without managing where they are spawned which would also allow you to reduce the spawn rate.