Yup xboxexpert has applied water cooling to the CPU & GPU of his Xbox 360, its one way to solve the occasional bout of overheating I guess, using these parts:
* Thermaltake CL-W0042 Rhythm Home Theater DVD Style External Liquid Cooling System
* KOOLANCE GPU-180-L06 GPU Chipset Heatsink
* KOOLANCE GPU-180-H06 VGA CARD GPU WATERBLOCK 1/4" ID
* 10ft of 1/4" ID 3/8" OD PVC Clear Tubing
Its an interesting looking mod tohugh I'm unsure how many would want to cut their 360 open to do it so it will probably remain the preserve of those like xboxexpert for the time being. You'll find the full story of the mod complete with many pictures over in this Xbox-scene thread.