My bet is it's the cooling. It just cannot keep up with the heat output for any period of time. In other words, it's getting "heat soaked". Once the cooler has reached it's limits and can no longer dissipate the amount of heat being generated, it just keeps getting hotter and hotter until the TM1 kicks in and throttles the processor back to where the cooler can again keep up.
I have this exact same thing when I clock to 4.0 or above. I can do 4.0 for short benches, but cannot game at that.
Cooling is the most important thing you have to get right before you can go to high OC's. If it's hot, it's gonna throttle and you'll loose performance, and stability.
Personally I settled for 3.9 on my 3.2E because i didn't need to spend anymore money on this system with the new Conroes coming out. Mt next system will have twice the capability, and will have alot of money in it, so i didn't see any need on going higher with this one. I had considered water or phase, but am going to wait until I build the next one to be sure i get the latest stuff.
You can never be cool enough. Even if you get below zero, you can reach a point where you want to go lower. OC's are limited by cooling. The colder you get it, the higher it will OC. The only limiting factor to an OC is how cold it is, and the ability of the cooler to keep up wit heat dissipation.