I don't know how many people would use such a system (aside from a handful of commuters, and Canadian fans going to watch sports in Detroit), but it's interesting.
I don't think there are any subway networks that transfer across international borders, but the closest existing example is at the two transfer points between Hong Kong's MTR and the Shenzhen Metro, at which passengers are required to get off one metro system, walk across the border, go through Hong Kong and Chinese immigration checkpoints, and then enter the other system. For most locals, going through immigration only involves swiping identity cards and doing a thumb scan at automatic gates on both sides of the border.
There are plans for the MTR and the Shenzhen Metro to accept each other's smart fare cards, which would require both cards to recognize two currencies (Hong Kong Dollars and China's RMB).
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Not familiar with the Waterloo LRT plan, but I'm thinking it would be interesting to see future extensions turn the LRT into something like the interurbans of old. The system could be extended east to Guelph, and south to Paris and Brantford.