If you leak enough to form droplets while the computer is running... something will probably fry. If you leak with the computer off, it will only fry if it hits something active (A part of the mobo that always gets fed voltage for example.) You can dunk electronics in water, and as long as they dry out before you use them, they will be fine.
And Conquerer I use water, and I'm speaking from experience when I say there are few if any benefits of water over air cooling unless you plan on running high voltages. Building a water rig to run an XP at 1.80v is pointless. You can get near silent air that will keep an xp at that voltage cool enough unless you have absurd ambient temps. In fact at low voltages water and decent quiet air have very minor temp differences... It's when the cpu's heat output gets very high that water becomes useful. At stock speeds and voltage, my air and water gets pretty close to the same temps. I wont go over 1.85v on my (quiet) air. I've gone to 2.2v+ on water and kept reasonable temps. Im not starting a fight I'm trying to save people who worry about frying their cpus with voltage from wasting their money on watercooling because they expect it will help them overclock further.
How much of a drop you will see depends largely on your motherboards temperature monitoring accuracy. I'd guess you'd see about 38-45*C with the fan around the same rpm on a slk800. But really, the slk800 is a much better heatsink than the volcano 9 and as long as the base is smooth and it's mounted right, your cpu WILL run much cooler. Maybe as much as 10-15*C cooler.
Also I made a mistake. I thought you only had ONE 256 meg stick. I see now that you have two, Personally... I'd still upgrade the ram and heatsink... Or save and go for a nf7-s, 2 256meg bh5's, and a sk-7 for a total of around 275$. After selling your old stuff you might be down only 150$ or so. Of course, your system is good enough that you probably don't NEED to upgrade... if that's the case, hell, go with watercooling for the adventure of it or save your money. But if you WANT to upgrade, I'd say get the ram and sk-7 (or 800/900u for slightly better performance, more secure mounting, and Intel compatibility)... and if you still can't get a good FSB (200+ with 5-2-2-2.0 timings on ram) then upgrade the board.