I tend to agree with you. However, has it ever been demonstrated? Does the minute compressibility of water have an effect? The “law” has been around for a long, long, time, why hasn’t been challenged?
On this page you can see a photograph of a basketball suspended in a state of perfect neutral bouyancy:
http://www.eyestorm.com/feature/ED2n_article.asp?article_id=13&artist_id=15
It’s from a 1985 installation art piece by Jeff Koons. It’s hard to achieve, yes … kind of like balancing a pencil on its tip … but not impossible.
Dude! Don’t cross the streams!
Aren’t liquid water molecules neutrally buoyant in water?
If the object was exactly as compressible as water, it wouldn’t matter at all.
If the object was less compressible than water, it would tend to stabilise it.
If the object was more compressible than water, it would be hard to make it stay in one place.
Umm … This stillborn allusion was further nuanced in Koons’ ‘Equilibrium Tanks’, a series of one, two and three basketballs adrift in aquariums perched on state-of-the-art vibration control pads. 
This was to be my next question, dammit!
Your point being? The fact the tanks are mounted on vibration control pads shows exactly how delicate a balancing act neutral bouyancy is. But the basketball really is just floating there … there’s nothing holding it in place.
Neutral bouyancy is certainly possible. You just have to keep the liquid still enough.
The bit about neutral buoyancy being impossible is not actually part of the law. While it may be difficult to acheive true neutral buoyancy, it is theoretically possible.
So, the vibration pads aren’t imparting energy to the BB’s?
In fact, the minute compressibility has known effects, which have been understood for centuries. Just for example, the Galileo thermometer.
No, they are to stop the pounding feet of the plebs from disturbing the balance.
No. They’re just isolating the system from the natural vibrations caused by people’s footsteps and vehicular traffic. I’m sure Koons could have dispensed with the vibration control table if he’d located the tank deep in an isolated mineshaft. That would kind of defeated its utility as an installation art piece though … .
Ah, … 
[nitpick]The water in a Galileo thermometer is changing in density due to thermal expansion and contraction, not compression; there’s an air gap at the top.
(although of course the system is sealed, so the water probably is compressing a tiny amount as it warms, but not nearly as much as the air in the top - the compression must be negligible for this apparatus)
I dunno; art being what it is, he could probably have installed it at the bottom of a mineshaft and left the public to ponder the deep existential meaning of its absence.
The forces acting on a submerged object are the weight of the object (acting down) and the bouyancy force of the fluid (acting up). The bouyancy force of the fluid acting up is equal to the volume of the fluid displaced by the submerged object times the specific weight of the fluid. When these two forces are in equilibrium neutral bouyancy is achieved the object neither sinks nor rises. See any Intro to Fluid Mechanics book for a diagram and a simple derivation involving simple calculus.
Saying that neutral bouyancy is impossible is akin to saying that objects can’t float partially submerged. It’s the same principle and the same equation is used to determine how much of the object is actually submerged and how much bobs above the surface.
Whew, thought it might be the thermal expansion and compression of the globules in the Galileo thermometer versus compression due to water depth.
And I just went to the Koons site above and have no idea why he had to consult with so many physicists:… “he worked with over 50 physicists, including Nobel Prize-winning Richard Feynman, to produce the ‘Equilibrium Tanks’”… Maybe they all went out for beers or something. This is not rocket science people.
You’ll have answer the OP if you can name one object that “floats” submerged? Please cite?