1) several reasons:
1. It is more upgradable. The board I linked has 4 DIMM slots as opposed to the 2 on the one you put. This means that although you have enough memory now, when you want to upgrade later you will have to get rid of all of your memory to upgrade. It also means the total maximum capacity is less.
2. Look at the PCIe slot on the board you picked, and the location of the SATA ports. A graphics card with a 2-slot cooler is going to be obstructing one, if not two of your SATA ports, meaning in reality, after you have your hard drive and DVD drive in there, you have no extra expansion slots should you later wish to add another hard drive or optical drive.
3. The one you picked does not have AM3+ support. Again, this makes for much better upgradablitity (real word?
), because when this system doesn't quite cut it any more, you are stuck, you would have to get a new CPU AND new motherboard, rather than just getting a new Bulldozer (AMD's new line of processors) chip, which will work on AM3+ boards, but not AM3
4. Chipset. The chipset of the board I picked will give you better performance than the one you picked.
2) I doubt you need more than 4GB. I frequently sit with at least 2 games open, TeamSpeak, Google Chrome with at least 10+ tabs, several files/folders, Xfire, Steam, all open at the time, and not rarely another program, be it an FTP client, Photoshop, calculator, whatever, and on 4GB, have yet to see my system go over 75% memory usage.
3) Wattage is not everything. The one I linked is of a much higher quality. You can get 700W PSU's for $20, when you can also get 700W PSU's for $100. The reason why is obvious - quality. The $20 PSU will be less efficient, less reliable and will not actually be able to output 700W, because of the distribution of power.
The components which use the most power, your CPU and video card, take power from the 12V rail of your PSU. Lower end units will not have most of the Amps on the 12V rail, but instead on the 5V and 3.3V rails. This means the manufacturers can claim they have a high wattage power supply, when really, it is no good because the system can't use that power. All that will end up happening is you will overload your already poor power supply.
4) What water? And it already has decent airflow. If you wanted, you could get another fan to draw air in from the front, but it isn't essential to do so
5) Yes, but bare in mind you will also take a performance hit. If you need to cut some corners to save some money:
Change the CPU to:
http://www.newegg.com/Product/Product.aspx?Item=N82E16819103871
Change the hard drive to:
http://www.newegg.com/Product/Product.aspx?Item=N82E16822136769
Change the memory to:
http://www.newegg.com/Product/Product.aspx?Item=N82E16820211364
6) I would take this set up over what you have now, however if there is an option to save up a little more, even just $50, you could improve the system further. With a $650 budget, you could change your video card to:
http://www.newegg.com/Product/Product.aspx?Item=N82E16814130570
which would greatly improve gaming performance.
Without that though, and just using the set up I put above, you will be playing every single game out now and in the near future without any problems