Ah, I remember this. It unnerved me at first because just a few days before hearing about it, I had a dream about a new Zelda game where Link would not be the protagonist...
To put it simply -- no. I personally would not want Valley of the Flood happening, not to mention the fact that the premise was too flawed to actually make a good game to fit into the series. First off, Zelda is not a series with dark and tragic endings. Bittersweet, maybe, but not to the point where everything and everyone would drown from eternal rains sent from the gods, which was exactly what would happen at the end of VotF. From the beginning of the game, you'd know that the world is doomed -- the Hero has not appeared, and Ganon is wreaking terror and chaos onto the world. Everywhere you'd go, you'd see people praying to the Goddesses for help. Everything is basically a depressing mess.
This is especially because the protagonist you play as -- the guy trying to take Link's role as the Hero -- is not destined to do anything, or else The Wind Waker never would have happened. He is not the wielder of the Master Sword, and therefore, he would be unable to slay Ganon and put an end to the terror. Knowing this, a game made with this plot would be a game that wouldn't fit with Zelda. There is absolutely no happy ending in the traditional Zelda sense.
All that being said, personally, I wouldn't exactly want a steampunk Zelda anyway. I'm pretty sure this would be a nice game out of the Zelda series, but if it was to be a canon title, it just wouldn't feel... Zelda.