The road along Watagan Ck is fine - it's a farmer's road, flat-as, and pretty heavily used. The roads to the Basin have a little more gradient, but are forestry roads, and were perfectly 2WD-able, and quite well maintained. Caveat: as mentioned, I was there two years ago, or more.
As to camping half way, I don't know. IIRC you come out of the Basin then slowly up along roads, then dip down into a fairly muggy creek valley (sluggish water, not much good, I wouldn't drink it,) then it's a long slog up to a peak, Kangaroo Pt Rd is a *&%$#! killer in summer. I don't think there's any more creek water until you get to Watagan Ck, as Matt said. I guess there might be soaks, I don't know.
The dry camp I mentioned is right toward the end of the hike, within a couple of km at least. ISTR you come north or NE along a spur just before the peak, and can see it in front of you. Pretty soon after, you're back on the road, which then goes around the peak and dives down through ankle-breaking erosion. I think it's the Flora Reserve Ridge Rest Area I'm thinking of
http://www.wildwalks.com/i.html?image_id=59276 looked like a nice place to camp, but I don't know about the proprieties of doing so, and as mentioned it's right near the end.
The Watagan Ck campsite is nice enough, not as pretty. I reckon I'd plan to camp there, and have the missus meet me with some beer, or do a libations/water drop on your reccie