Either of those scenarios would work, provided you have adequate cool air coming in either from the front of the case, or from the side panel and that the exhaust fan can keep up the airflow that the intake fans are pushing in. Your case doesn't appear to have any side vents, so this would be more important than if it were vented to allow natural dissipation of air.
I have two cooler master 212 plus coolers on mine. They're larege and I had to use different screws and tape around a heat pipe that would otherwise contact the ram but they seem to cool it pretty well my cpus are about 48 degrees. The drawback is that one cpu gets a degree or two hotter since that fans blow into it from the other cpu. I know that the stock intel coolers work with them but they cost more than my coolers and didn't seem to work as well when I read reviews. If you can find coolers that will blow the air straight up and that are not too wide that they'll bump into each other, you'll have it made. I know it sounds like a hassle but fitting my coolers on to my cpu was the most fun part of my build for me, they look awesome in there. I'm not sure if my configuration will fit in your case though. I have a cooler master atcs840 and it's rather large.
any i7 or 5500 xeon cooler should work for you. You may just have to replace the screws with slightly smaller ones or do something different with the springs. this part really isn't rocket science, though. If you didn't get it right and it gets too hot, it'll just shut down. Just don't screw anything in too tight as the new screws you get won't have stops on them and you might mess the board up if you crank them down way too tight.