I've never had one die and have never heard of one that did, but yes, they do insulate very well and will KILL your chip in a hurry if it ever did die. I'm dreadin the day mine ever quits. I'm probably going to take it off my chip and make a water chiller out of it anyway.
My celeron 566 is being cooled with a 72 watt peltier from millisec, and an alpha pep66 modified by lapping off the bump on the original peps, and polishing the copper base smooth. After making sure the surface was completely flat, by pressing a dead peltier,( i killed it by twisting off the wire by accident) against the base to see if it was a flat surface, i applied the old radio shack thermal paste and smoothed it out.
After firing it up with an old 230 watt AT powersupply for its own use, I can happily state that my 566@ 952 mhz celery runs idle after 30 minutes at -7 C, and 19 C at full load after 1 hour game with a chessplaying program at yahoo. Ambient air temp is appr 24C. Not bad.
The key to air cooling a peltier is the wattage rating. 72 watt and less for air; over 72 I would go for water coolling. Also, ambient air temperature is key, With the summer comming up, unless I switch to water cooling, I will have to lower my clock speed to about 910 or 884.