From the considerable amount that I've read on the subject the general consensus is that running fuel cells on hydrogen will actually clean up the environment. In it's purest form water H2O is two hydrogen molecules and one Oxygen molecule bonded together by shared electrons. Now comes the tricky part... when you release hydrogen and oxygen by method of electrolysis what you're doing is "injecting" extra electrons into the water. So the H and the O in the H2O no longer have to share, and the bond is broken.
When you then run the hydrogen through a fuel cell it strips the electrons off the hydrogen, the oxygen in the air then shares it's electrons with the hydrogen molecule and water is formed... absolutely pure water that is. The water is in fact so pure that it will not conduct electricity.
As a side note, when you're splitting the water with electrolysis, the impurities in the water work against you. So if hydrogen cars ever do hit the market you'll probably see some method of capturing that water vapor hit with them... it would become the best available source for pure water.
One other thing... PEM fuel cells don't have to run on pure hydrogen.... www.plugpower.com is trying to get theirs to run reliably on natural gas or propane. GMC also ran a concept S-10 pickup on propane although this ran through a catalytic converter... it was 28% more efficient than just burning the propane if my memory is correct. It all comes down to stripping electrons from molecules. Hydrogen works well because it's easy to make, and when you run it through a fuel cell you get a beneficial byproduct. But it's just a transportation media you still have to get that energy from somewhere else, solar, wind, hydro-electric, nuclear or fossil fuels.