This study explores the development of a water-based hybrid thermoelectric (TE) material composed of Sb2Te3 nanoparticles (NPs) and polyethylene oxide (PEO). Sb2Te3 NPs were synthesized via the microwave-assisted colloidal route, where X-ray diffraction confirmed the purity and quality of the Sb2Te3 NPs. Key properties, including the Seebeck coefficient (S), electrical conductivity (σ), power factor (PF), and long-term stability, were studied. X-ray photoelectron spectroscopy (XPS) analysis revealed that exposure to water and oxygen leads to NP oxidation, which can be partially mitigated by hydrochloric acid (HCl) treatment, though this does not halt ongoing oxidation. Scanning electron microscopy (SEM) images displayed a percolation network of NPs within the PEO matrix. While the initial σ was high, a decline occurred over eight weeks, resulting in similar conductivity among all samples. The effect of surface treatments, such as 1,6-hexanedithiol (HDT), was demonstrated to enhance long-term stability. The results highlight both the challenges and potential of Sb2Te3/PEO hybrids for TE applications, especially regarding oxidation and durability, and underscore the need for improved synthesis and processing techniques to optimize their performance. This study provides valuable insights for the design of next-generation hybrid TE materials and emphasizes the importance of surface chemistry control in polymer–inorganic nanocomposites.