It's been done before, but I can't remember where I saw it, and I haven't found anything through a quick search on google. The one example I'm thinking of had the motherboard and cards submerged in a tray mineral oil, and an oil-cooled PSU (scary-looking, but it worked - I believe he coated the PSU components with thermal epoxy).
You don't need to submerge all the computer parts in oil, as components such as CD-Roms and HDs are sensitive to things like being dunked in big tanks of oil - HDs have air filters built-in, and waterproofing a HD would most likely cause it to be warmer, not cooler. Also, CDRoms need to open and close, is kinda difficult to waterproof something that you regularly need access to

.
IMHO, it's not worth it, unless you supercool the oil...but by all means, try it if you dare
cheers
tweakr
<edit> I think I'm mixing up two seperate projects, the oil-cooled PSU was related to making a silent PC I think </edit>