AD&D has a long history of having aquatic 'foo,' including aquatic elves, aquatic hobgoblins (koalinth?), aquatic ogres (merrow), aquatic trolls (scrags) and aquatic gargoyles (kopoacinth?).
Aquatic hobgoblins allows for another PC option, and a version of Sahuagin or Locathah with a lower AC bonus could also work (+1 natural armor, like kobolds, or even +2, max, should be fine).
Very few metals don't eventually corrode underwater (gold and platinum are very resistant to corrosion, but crap for weapons). Mithril and Adamantine are fantasy metals, and you can decide whether or not they corrode, but they are prohibitively expensive.
The best bet for allowing underwater races to use metal is to allow for an alchemical solution to oil metals so that they resist corrosion (and the solution could also undo minor corrosion damage, being about as powerful as a pmending cantrip, for this purpose). Alternately, perhaps the alchemical solution is only a preventative, and the mending cantrip is necessary for when the weapon or armor gets banged up and it's coating eroded away. A single coating might last for a month, and only cost a few gold pieces.
By introducing an aquatic creature with the dragon type, a smaller version of a sea serpent, perhaps, or an 'aquatic wyvern,' or some aquatic versions of drakes or tatzelwurms, you can also provide a ready source of 'dragonhide' armor. It's relatively cheap (double cost of normal metal armor) and has the same effects. By doing that, you sidestep just handwaving away the effect of the setting on metal armor, but still allowing equivalent protection (at double cost).
1st and 2nd edition, IIRC, had 'sea elven scale,' that was the aquatic elven equivalent of 'elven chainmail,' so you could even go a step further and have a much more expensive version of aquatic 'dragonhide' that functions like mithril armor, instead of steel armor. Mithril is expensive enough already, that just using the same price (and not double!) should be fine.
Alchemical weapons will be harder to deliver underwater, so some sort of 'bang-stick' innovation which afixes an acid flask or thunderstone to the end of a pole, which is then used to make the touch attack on a foe, might be necessary for anyone attempting that sort of activity. A bomb-throwing specialized alchemist, in particular, is going to be a sad panda, without some sort of customized archetype that allows him to alchemically transmute water near him into acid, or something, in place of the traditional bomb-throwing.
Alchemy, again, provides a potential solution to the problem of metal weapons, as one could either have a special oil that protects a metal weapon from corrosion, *or* a special salve that strengthens a weapon of coral or bone or ivory to allow it to function as a metal weapon, or, more likely, both. The solution might require re-application every 30 days, and represent a sort of 'tax' on owning a metal weapon, or on having a bone/coral/ivory weapon that functions like metal, and, at higher level, one will probably be able to afford a minor magical enhancement that makes a metal weapon permanantly non-rusting, or a coral/bone/ivory one permanantly as hard and sharp as steel (one of those flat-cost enhancements, like +1000 gp, or something, not something worth a '+1 bonus' or anything!).
The 'dragonhide armor solution' can also be applied to weaponry, and, for double cost, one might be able to fashion 'dragonbone weapons' that are non-metal, and function like metal weapons statistically. Creating them from the bones of dragon-Type creatures that aren't true dragons, such as aquatic drakes / wyverns / tatzelwurms / etc. will help justify them only costing twice as much as a metal weapon, and being so readily available to the undersea races.
Spells available should be limited to those that will already work underwater or modified, with the undersea races learning a version of burning hands or fireball that superheats a cone or spherical volume of water (and therefore won't work above the surface!), instead, at no additional cost. Some other aquatic elven / etc. wizard made these necessary modifications ages ago, and the party wizard will be able to learn these modified spells normally (or the unmodified versions, if he intends on adventuring above the surface, on occasion!).
Spells that 'logically' might not work underwater, such as shocking grasp mysteriously do work even when it's raining, don't accidentally go off and blow one's willy off if the caster stops to pee, and can even affect a flying target (that isn't grounded), could be assumed to work just as inexplicably well underwater as they do on the surface, since they are already scoffing loudly at physics anyway.
Piercing weapons will be the rule, underwater, and creatures with DR vs. piercing, such as skeletons and zombies, will have a strong advantage at 1st level, as nobody will likely be carrying a bludgeoning or slashing weapon, and, even if they are, those weapons will be much less effective.
Being able to take a 5 ft. step up or down may create some unusual battle 'maps.' On the tabletop, we would represent a flying character by standing him on a die, with the number on the die representing the number of squares he was above the ground. It will get more complicated if the encounter occurs in a place where characters can end up both above and below the plane at which the combat begins, and in a PBP, where positions aren't marked by figures. (Representing them on a standard map, it might be necessary to put a plus or minus next to the icon representing a character, with a number indicating how many squares up or down they are, from the 'starting plane,' to represent that third axis.)
"Bob's character is in D3 +1, the sahuagin is in E4 +2, so I summon my celestial dolphin into F5 +3 to set up a flank."