You know, the OP kinda gave he answer himself - just use manned watermills. It gives the same effect, and the watermills are allready implemented and cheap as hell.
Minor detail, but 'herself' not himself, etc.
Manned watermills require a bit of setup and are almost never useful by the time you make them-they are little more than a waste of half a generator. A dynamo that can be crafted into a regular generator is much more useful as tier 0 (basically for macerating your very first ores and extracting your first rubber before you even have to make a proper generator and powering the last few seconds remaining in a machine). Also, manned watermills are very grindy in comparison: a watermill require you to run back and forth with water buckets, while a dynamo require you to just right click for a short while- It's balanced differently: the watermill is balanced on how annoying it is to use, while a dynamo is balanced by food supply. finally, a dynamo is much more mobile and spontaneous, since it doesn't require a bucket and an infinite water source.
This is where I'm coming from - whether it is a handheld device, or place-able, it is a device that you need to manually right-click (or right-click hold) to get the EU/t generation - if you're not standing there working the dynamo, it's not producing. Its a cheap, but food/time intensive process for the first few stages of play - Tier 0. For all the current arguments against, it seems to be either 'why bother', in which case the AE quartz grinder, Forestry clockwork engine (and such) would be the same, yet they are welcomed, or 'use manned watermills' which seems to miss the point of a Tier 0, manual use [see above quote] (especially if GT is in the mod-pack, but useful even without).
Being able to craft-convert it into a Generator would remove the 'sitting in junk-chest once used' aspect, while still providing that initial Tier 0 helping hand at the start. I'd agree, before it's mentioned, that the 'conversion to Generator' recipe shouldn't be so cheap that everyone turns to making dynamos for Generators all the time.
All that said, the open-minded discussions are rounding out the idea, so please, discuss on.