There is no need for watercooling and it wouldnt fit in your budget, nowadays air cooling is just as good as water until you get to the top end of water cooling which is gonna set you back £200 alone. The Nvidia cards arent quite as good value for money as ATI, and you cant add another later with NVidia, I specced the ATI cos you could always add another next year if the system needed it - If you do insist on NVidia sub in a 260. Similaraly AMD processor is either cheaper and not as good or more expensive, this E8500 is your best bang for buck performance at moment, also I have little experience with AMD so no I cant spec you an AMD system
Edit: As a note if you already know what you want you should specify in your post so we dont waste our time trying to help you