Yes, CO2 dissolves in water. In fact, many of us have a favourite carbonated beverage that contains CO2 dissolved in water, and when you open the cap on the bottle, those bubbles of CO2 come out. At the IEA Weyburn project the researchers concluded that the pressure from the CO2 that's injected into an oil and gas reservoir will dissipate within about 100 years--the excess injection pressure that's required to push the CO2 in there. The CO2 will dissolve in oil and in water, and some of it will actually carbonate and turn into minerals. So that enhances the security of the storage. You don't just have a big bubble of gas sitting underground.
On May 15th, 2007. See this statement in context.