it causes some damage, but much less than cigarettes. First of all, the tobacco has less tar and nicotine to begin with, plus it gets filtered by the water. When you inhale it, you don't even feel the smoke going in at all. I swear everybody that I've seen trying it for the first time, they inhale deeply, they take their mouth off and say "Is this thing working?", while all this smoke comes out.
Plus, cigarette companies add extra nicotine and crap to make the cigs more addictive...this stuff is just naturally grown, flavored tobacco. and I've never gotten a nicotine buzz off smoking the hookah, even after smoking for hours. If I smoke one cigarette, I get dizzy.
And, you don't stink like tobacco later on or tasty nasty tobacco in your mouth the next day.

we don't use public hookahs either, a friend of mine has a mini collection of them from Greece and Egypt, and we use his. I'm gonna get one of my own, too.