The closest thing to the Holy Water (formerly an EU only treasure) to me, is a Spell Scroll. It replaces an attack (uses an action) and can be used by anyone, as opposed to a potion which can be used by anyone virtually at any time and doesn't constitute an action. Yes, Spell Scrolls don't exist in the EU game from which it came, but they function pretty much identically, although Scrolls don't come from the Treasure Deck but are special treasures.
My comments are focused on the NA edition, whether classic with homebrew or the Remake edition that incorporates it, so take my comments in that spirit.
It strictly, literally says it will destroy one skeleton, mummy or zombie and that was probably the original intention to do no more or less.
You could read this to mean it won't work on "special" undead characters. It was probably intended that a simple "special" (quest notes) undead character like a mummy with an extra defend die or something would still qualify for instant destruction, but not a unique named character that had some kind of undead quality to it (like the Witch Lord and his generals) for which it would have no effect.
Whether it impacts Chaos Warriors or not is a matter of homebrew opinion, but I don't generally treat them as undead (in my De-magicified world they are more like chemical mutants so maybe it will work on them, heh). In the base game Chaos ("Dread" in the Remake) Warriors are simply evil humans who may or may not be endowed with Chaos magic in the form of spells or enchanted weapons. Doomguard, I thought were simply elite level Chaos Warriors, not like skeletons clad in armor.
In my own homebrew using the NA as a base, I change it to say it just does 4 BP damage to an undead, so it would work on "special" quest characters that were undead. And yes, the old debate about the Witch Lord here I tend to side with those to say he's "something else" and so isn't killed by it (though maybe it doesn't make him happy either). Despite the skull faces, the Witch Lord and his generals don't have zero mind points like your typical undead (although the Remake did give ol' WL a special figure in the Mythic tier that was undead color, go figure). There was a big debate on the forums over what he was, but generally it seems people were thinking he's in some other category and according to the basic rules that seems to be the case, though I like the idea that Holy Water has some effect on him, just not like on the low level ghouls.
Can you throw it? Yes. Using the "Spell Scroll" comparison above. You can use a "Spell" on any target you can see for those that aren't "use on yourself and that's it." So emphatically yes, any target you can "see" whether adjacent, diagonal or long range. Under NA rules that still requires strict Line of Sight (in the EU it's even easier to hit someone with it, pretty much anyone in the room is guaranteed even if it's silly like they're behind a bookcase).
Now if you really want to make it more powerful, see the official PC versions of HeroQuest from 1991 where Holy Water didn't kill just one undead, but ALL the Undead in the Room or section of corridor with you when used!
The first mod I made to the Remake Edition was to reprint the Holy Water (and Potion of Speed) Card(s) so that they were specifically treasures, rather than Equipment. To me, you don't buy Holy Water (can't buy a blessing!) but you could buy the fancy bottle I suppose... and while there are opportunities I take to give away Equipment, having the cardback that says "Treasure" makes it blend in with the rest of the deck so it's still a surprise when you uncover it! (before printing the cards, I just had fake backs in sleeves showing treasure and slipped those and some potions in there as well).
Having one Holy Water in the Treasure Deck per quest isn't a big deal. Where I created a situation was with my Paladin character who generates a Holy Water vial every quest, but since this is the NA rules and you don't lose them if you don't use them, he can stockpile them, meaning he can clean up ROTWL if you'll let him! I also wanted to give the Cleric the ability to use a mace as a "holy water sprinkler" by combining it with the HW to hit multiple targets (splitting up the damage) so making it close to the (bit OP) PC edition. I suppose a plot device could always be introduced where the character has to donate his stockpile to help the war effort elsewhere or something.
And as for the "hang onto it until you see a Mummy" I think if you've got a weak attack like the Wizard, it could be worthwhile to use on a Zombie or even a Skeleton under the right circumstances. Yes, he's got spells but he may be saving those for some other big guy expected.
As Zargon, as a courtesy, I would warn the Hero if it would have no effect on a target rather than letting them use it and say it was "wasted." In the PC game if you use it and there are no undead monsters in the room/passage it is wasted. But the PC is kind of an odd duck in terms of how a lot of things work.
PS: I do like the idea that a "boss" character changes the instant destroy to a "roll for damage no defense" thing. So maybe the Witch Lord would get 4 attack dice against him but they could "miss."
Next question: would you allow it to do damage to Werewolves? (EQP)