I don't think you should sell it. College is a great place for a powerful gaming rig! Just leave it sitting in your dorm room--you don't have to lug it anywhere. And if it's just the i7-965 and single GTX 570, you'll only get $600 or so for this rig, so it's not worth selling.
As far as the heat, the H40 isn't a very strong cooler. You'd do better with a Hyper 212+ or an upgrade to an H80, if you insist on staying on water. I mean, I live in Guam (tropical island 87° F) w/ no AC and my i7-930 was fine at 3.8GHz on air, temp wise, with a GTX 470. I sat at 50C idle, 75C load with a Xigmatek Dark Knight.
You may want to reseat your heatsink, apply the TIM with just a drop in the center, and make sure you've got a solid fan. What TIM do you use? Reference: http://benchmarkreviews.com/index.php?option=com_content&task=view&id=150&Itemid=62&limit=1&limitstart=12
Feel free to send me a PM. You may want to start a thread on heat and close this thread--assuming you don't still want to sell it.