Yo, Meteorologist here.

Cloud formation is going to depend on the temperature and density of the air between the source of the water and where it's going. If there is 'space' in between or very little atmosphere, you won't get clouds and the water molecules will just disperse in all directions. If there is an atmosphere, then what happens with the clouds will depend on the structure of the atmosphere.

I'm guessing the most likely case is the atmosphere is more dense near the edge of the drum. In this case, the stuff coming out of the sprinkler (unless it's a giant hose it should be air with some water vapour) will move outwards until it reaches a point where the density of the atmosphere equals the density of the stuff coming out of the sprinkler. If enough of that stuff clumps together you'll get clouds. Assuming there is constant heating (eg. no tilt like on Earth) then the clouds should form around the same height.