I do believe, that water is better at sucking up heat than Mercury, however other more important reasons follow.
1) Okay, this reason was more of a lack of a reason.. I removed it.. Heh, the other two are good though.
2) The vapors: Yes, these are VERY BAD. You know how the mad hatter got his name? They used to heat up mercury and dip the felt in it to clean it... Mercury alone isn't the safest stuff in the world, but isn't way up there on the bad stuff.. Some cultures even drink it as a fix-it-all medicine (which doesn't work I'm sure.) The vapors however are aweful, so if we're talking about heating up the mercury (thus in a cooling system) and it's accumulative. Unless you're cooling system is air-tight all around..
3) The stuff is dense, 13.6 times the density of water.. Heavy, you'd need one HELL of a pump to push that sucker through a cooling setup, it's impractical.. You'd have better luck with liquid nitrogen prolly..
So, unless you've already whiffed a few too many mercury vapors, it's probably wise to find some other super cooling idea.