I think the ability of wood to withstand water is often underrated.

When we were young and stupid, we finished two fir wood sills beside our bathtub with diluted paint. I wanted them blue with the grain showing, and in those days you either couldn't get blue stain or I couldn't find it, and there were certainly no forums to ask. Similarly, our kitchen cabinets are green diluted paint over pine. I'm sure the green paint was oil-based and thinned with thinner, but I believe in the bathroom we used latex paint thinned with water.

Sixteen years later, I am pretty astonished at how good this wood looks. The kitchen has some grease spots, but in the bathroom, where the wood gets only soap and water contact (but gets wet every day), the sills look like new when I wipe them.

I think both our finishes are about equivalent to a penetrating stain; the paint has no integrity as a coating. The fact that your coating wore off also suggests that a penetrating stain might be your best approach. Or who knows, maybe the diluted paint was a good idea for some reason, but you can probably get the colour you want in a stain.

I don't know a durn thing about staining cedar, but surely there would be some information on the 'net if it has some special needs in regards to a finish sticking; I'm guessing an oil-based stain might be preferable but don't really know.

KarinL