Matt,
My experience tells me that water cooled systems are more expensive, more prone to accidents (water leak and a fried computer!), more hassle to setup and about as effective as a proper air cooled system.
I would stay away from a water cooled system, and guess what? The water is cooled by a fan anyway! Also, the money you spend on water cooling could be spent on better parts
Processor sounds good anyway, I would personally go for an Nvidia Card, but ATI and Nvidia are about neck and neck I'd say.
Also, to keep the costs down if you want, buy 4GB RAM first, as you can always upgrade later if the mobo supports it