Some people have said that the sys temp is read from the Winbond chip itself, but my intepretation of the Winbond spec sheet is that there are 3 external temp inlet connections, I assume sys temp, CPU diode temp and the JPO1 plug in temp probe.
I opened my case when I was worried about the sys temp and directed a fan on the Winbond chip. I started stessing the setup, and turned on the fan but the sys temp didn't go down. I then added an 80mm fan blowing on the Northbridge HS and another on the DRCGs and Rimms, this seemed to get the sys temp down approx 5C. So I think the sys temp sensor is on or near the Northbridge, DRCG and/or Rimm area.
I also figure that this is why the sys temp and to some extent the CPU load temps are showing so high for most people. As I said in another post, I'm running 5-10C higher than my old P3 setup, same case and case-cooling, even accounting for CPU speed and vcore differences.
The DRCGs expell thier heat through the board due to thier design, you can feel the heat coming at the back of the mainboard , and the Rimms give off more heat than SDram, especially OC to PC1066 speeds.
Another reason I think the reading come from that are is that the sys temps rise under load with the CPU temp, never happened with my old P3/Sdram setup, and shouldn't happen if the reading is taken from the Winbond chip down on the lower part of the board.
Mike G