With regards to watercooling, think of it like a fridge.
You're keeping the components inside nice and chilly, but all that heat has to dissipate somewhere (feel the back of a fridge, it's not cold!). Remember that you've probably got around 2 120mms cooling - just like you would in your case. You're also dissipating 10-20W from the pump straight back into your room. The CPU block will stay nice and stable at room temperature, but your room's still heating up!
The main advantage is that it cools much more effectively than water does and can often be a bit quieter than an air cooled rig (although typically only if you cool the graphics card which is generally the loudest component unless you have a beefy CPU cooler of course). The disadvantage is that it's expensive. A reasonable rig would work out as follows:
Pump: £60-80
Radiator: £30-50
CPU Block: £30-70 (varies immensely)
GPU Block: £50-70
Piping and Clamps: £10
Special Coolant (or something like distilled water - you don't want limescale lol!): £10
Extra Connectors and so on: £20
Reservoir (optional but recommended): £10-40
Low Noise, High Output Fans (1-3): £10-30
So that works out to around £150-170 without the graphics card block. You can of course buy cheaper kits, but the above is what i'd expect to pay for a decent quality set up. You're looking at well over £250 for a high end watercooling rig. The other main catch is maintenance and failure. Well prepared, watercooling is incredibly safe - IBM have famously watercooled servers for years without any problems - however, it's not a trivial thing to set up. You need to meticulously test every single component for 12-24 hours to make sure you've got no leaks, because a single drop could fry your system.
Now that's assuming you go homebuild. If you get a pre built system, that figure could jump to £400 and possibly more. Quite simply unless you're going for the mod factor or you're a serious overclocker, go with a decent, quiet air build. Most low noise coolers can easily handle low overclocks due to the flexibility of C2D - and no doubt Nehalem too.
As an example.
My system (see sidebar) is pretty much silent without the GPU fan (i'm getting an Accelero S1 to cool it passively). In the past i've pushed my E2160 to around 3.00Ghz which is a standard overclock as far as i know (a 1.2Ghz increase - 60%). My temps without overclocking and with clean cabling inside are around 30 degrees (my room temperature is 21 without the heating on so that's a 9 degree difference). With overclocking that pushes me up to a core temperature of around 50 with 100% CPU usage. Your Quad is likely to run hotter than mine, but it will still be within a reasonable range.
10% in my opinion is not worth it, if you're going to overclock, pick a temperature ceiling you're willing to hit and then see how far you get trying to meet it stability wise. As Webby says, you should be able to get 20% no problem at all. Have a read of Clunk's awesome guide though - if you do end up with the build i linked you it's an Asus motherboard so you can follow along with the BIOS screenshots quite well. It's stickied
