most definitely works. rub it on thick - petroleum-products and water will not easily mix so as long as the layer of vaseline remains, there's a barrier preventing the sub-40 water from contacting your skin directly.
I've found it helps with wind as well, just by way of protecting the skin a bit, but that may be more psychosomatic than anything. For water, it certainly is a big help.
As for under the wetsuit, I've been doing that in critical chafing areas (armpits, neck, nipples) during long sessions in my older suits for a long time and have not noticed any adverse effects on the integrity of my suits.