THEORETICALLY distilled water would work, but in reality it won't. Pure water is non-conductive, but impurities such as dust or anything in the case or on the motherboard would significantly increase conductivity. I have a water distiller and have tested the output - with a 30 v source I can get about 2-3 ma across a 2" distance. Even a single grain of salt in a pint of distilled water will greatly increase the conductivity. Now think that many of the traces and leads at 12 volts are only 0.1" from ground. As soon as this happens, atoms of metal from one terminal are released and migrate to the other (it's called electromigration, the process used for electroplating, also this is a way to turn water into hydrogen and oxygen gas called electrolysis). When this happens you get MORE conductivity due to the impurities in the water, leading to greater current flow, more electromigration, more impurities, etc. If you want to run a test of this: get a 12v source or even a 9v battery and connect them to two pieces of bare copper wire about 6-8" long using alligator clips. Put the wire in a glass (use real glass, it's more transparent and is non-conductive) and make sure the wires don't touch, about 1-2" apart. Fill glass with distilled water and put something over it to keep and dust out. Let it sit overnight. Observe what would have happened to your computer had you used distilled water. There will be a big mess of oxidized copper from the oxygen generated and a bunch of copper that has come off the other wire. Your battery will probably be dead because the low resistance of the contaminated water has caused such a large short-circuit. I've done this with two 6" silver wires to increase surface area and about 30v (30v produces the least electrolysis) and after about 30-45 minutes you can see one of the leads is heavily tarnished and the other has a visible trail of microscopic sized metal particles falling to the bottom of the glass. There was about 25-40 ma flowing through the circuit - enough to light up an LED and more than enough to cause all kinds of problems with sensitive electronics.
Nobody uses distilled water for an external liquid cooling setup (at least not for more than a few minutes or with the same equipment twice).
There are only two reasonable choices that I know of, mineral oil and Flouronet (sp?). Flouronet has better thermal tranfer properties and can get very cold before thickening, and cleans up easily but it costs several hundred dollars per gallon. Mineral oil doesn't transfer heat as well and will not easily come off of components, but it is cheap. Do a google search and you will find examples of both. Personally I watercool and have no need for anything more extreme.