Hydrosols are created as a normal byproduct of EO distillation, but now people are doing distillations with the main goal to make a good hydrosol, not to make EO.
A hydrosol distillation needs to end when the scent in the hydrosol begins to deteriorate. When hydrosol is merely a byproduct of EO making, the botanical material can be over extracted and the hydrosol ends up with a "grassy" or "hay" scent that isn't pleasant. The difference is like making tea -- you can brew tea properly and it smells and tastes really good or you can over brew the tea and it tastes bitter and doesn't smell so nice. The difference is all in the timing.
I grow sweetgrass and one of the things I wanted to try last summer was to make sweetgrass hydrosol. In all my reading, it's one of the least common hydrosols -- I only find it sold by artisan hydrosol makers. Sweetgrass does not produce an essential oil, so I suppose that's why it is disregarded by the mainstream producers of EOs and hydrosols. (It does make a great infusion into a good vodka -- the aromatic compounds in sweetgrass are alcohol soluble. You end up with a nicely fragrant vodka that's an interesting pale emerald color.)
I also came across the kludged-up kitchen "still" that you have been looking at -- the one using a big pot, upside down pot lid, and ice -- and tried it. Yes, it really does work on a limited hobbyist level. I'd want to redesign the apparatus so it is more efficient if I was going to regularly make more than small amounts of hydrosol.
The thing I don't like about the usual design for this "still" is that you put the botanical material directly in the water in the bottom of the pot and boil the mess as if to make a tea/tisane/decoction. I've done a tisane/infusion of sweetgrass -- the result smells strongly of hay and grass and is not particularly interesting nor pleasant. I really wanted a system that only allows steam to rise through the botanical material and strip the best of the water-soluble fragrance compounds off the plant material. That condensed steam is the hydrosol.
So, being the engineer that I am (and a chemical engineer to boot), I adapted the usual design. I wanted to raise the sweetgrass out of the water so only steam would touch the grass. I found a colander that fit snugly inside my pot. I put a small dish that was just tall enough to keep the bottom of the colander out of the water in the bottom pot. Colander with chopped up sweetgrass went on top of that dish. I then followed the usual design by adding a second dish to collect the hydrosol, the upside-down lid, the ice, etc. All that went on top of the sweetgrass in the colander.
Gosh, I don't think I'm explaining this well, but I hope you get the drift.
I steamed the sweetgrass for about an hour and collected about a cup of hydrosol in the top dish. It smells heavenly. The hydrosol is surprisingly floral and sweet. I want to keep working on this as I collect more fresh sweetgrass this summer (it's best to use fresh stuff, not dried).
Will heat and hold kill the "goodies"? I don't think so. After all a hydrosol is created with steam, and the temperature of steam is going to be well above the usual 180 deg F for heat and hold.
I would definitely use a good broad spectrum preservative for any lotion made with hydrosol. The hydrosol will supply some amount of "cootie food", although I have only a sketchy amount of info about this. I do know hydrosols that aren't refrigerated, frozen, or preserved will eventually spoil and show obvious signs of bacterial growth, so there's clearly enough food in a hydrosol to make bacteria happy. I have to say the sweetgrass hydrosol is surprisingly pungent, so it's likely I would use the hydrosol for only part of the water phase. This will help the sanitation/preservation issue.
There's a lot of creative thinking about the magical and supposed medicinal properties of hydrosols. That bothers me a bit, because there is little or no real evidence that hydrosols do much more than smell good. I might use a hydrosol in lotion, but I would do it simply because it smells nice and I like nice smells. I sprayed a bit of sweetgrass hydrosol on my hair on a wild whim, and it was lovely how my hair held onto the delicate scent for most of the day.
I now have smelled sweetgrass hydrosol, a commercially produced rose hydrosol, and two commercially produced sage hydrosols. The sweetgrass is really nice (even discounting that I made it). The rose smells like a cheap perfume from the 1950s -- it was okay, but nothing I'm going to spend money on. The sage hydrosols -- one is over extracted and smells overly grassy/hay-like. The other was just bland and not particularly sage-like at all. I suspect a thoughtful hobbyist can make some surprisingly good hydrosols that may be far better than the run of the mill commercial products (which may or may not even be true hydrosols).
This is kind of running off at the mouth, but it was so neat to make the sweetgrass hydrosol and have it turn out so well.