Many people do line the waterline with pencils or fluidliners and I used to up until very recently.
I cant do it anymore because it really irritates my eye membranes and I end up with allergic conjunctivitus (pink eye). This happens no matter which products I use, MAC, Benefit, NARS etc, it can be pencil liners, gel liners, brand new products or liners Ive had for a while - always clean and sanitary though...
Ive been told by my doctor not to line my waterline any more because of the allergic issues and I wouldnt suggest anyone else do it either....