Maybe it does, but if you do it properly the components will become obsolete way before the OC would damage them. I still have Coppermine Celeron 566 thats been OCd to 850mhz for past 7 years or so, works fine as my mums typing machine/music player
As for e5200, even though its named dual core(marketing), its the same 45nm wolfdale core that you find in c2duos like e8400, just has less cache and runs at lower stock speeds. If that bothers you than maybe go for e7xxx. BUT:
If that pc is supposed to be a gaming machine than graphics card is far more important than cpu. The choice on this one should mostly depend on size of monitor/resolution you will play your games in. What is it?
If you go with e5200 than i had mine OCd to 3.6Ghz on stock cooling, but that may vary dpending how much voltage that specific chip will require, ambient temperature, case ventilation etc. But in general, like Animal said, you should be able to get decent OC on stock cooler. I also agree with at least hd4850 for that monitor. I have virtually the same setup(OCd e5200, 2gb ram, OCd hd4850, 22" screen) and it allows me to play Crysis in 1680x1050 with High details(dx9) at around 40fps. Its still playable with 2xAA enabled. So Im afraid anything less than 4850 just wont cut it at that resolution. But it looks awesome in 1440x900 too
He didnt mean virtual drives like daemon, these will run just fine
What i meant with the voltage is that basically every chip/setup is different and every one will reach certain speeds with certain voltages, and they have direct impact on temperatures. But with OC you really just need to follow few rules and you will be safe. Read the great guide on overclocking on top of the OC section, thats pretty much all you need.
As for e7300, it might have slight edge over e5200 but where i live it costs twice as much and for me its nowhere near worth it. I would rather pump that spare cash into better mobo/more ram/better gfx.
I dont know how these rebates work but its below $120 before the rebate anyway. I have it myself and its a great board. Rock solid with my OCd stuff. It has Ati Crossfire support so you can add another 4850 in future if needed, it also supports all lga775 processors so again you can throw in a nice Quad in future as well. The BIOS is also clear and easy, great if you never OCd before.