air cooler or water cooler

water cooling is better. If you decide to go with water cooling then be ready to spend quite a lot of money, I've heard that those cheap water cooling kits are pretty awfull.
 
If you want the best of the best, water cooling is the way to go. But only if you get a high end kit, as low end water cooling kits are often outperformed by the decent air coolers whilst costing a lot more.

What is this for exactly?
 
Swiftech makes really nice kits especially now since they integrated the res with the radiator, and the pump with the cpu block. You can also pick your own parts and piece together your own system. Thats what I'd recommend doing since you'll be able to build a nicer system for yourself that way.
 
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