Water Cooling or Air Cooling?

Watercooling will be more efficient and quieter but it will be more difficult to maintain than air cooling. However there's no need for watercooling unless you're going to overclock a lot.
You can probably get around with air cooling and those 300 in your pocket.

I would say go with a sealed watercooling unit like the corsair H100 . I run a full custom water cooling loop and maintenance can be a pain. Its also very expensive, i spent close to a thousand dollars just on my water cooling loop.

If you get a corsair H100 you have the advantage of water cooling with a 240 rad with no maintenance hassles. highly recommended. The H100 is also only 100$ and the included fans run pretty silent until on high where they are still acceptable
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Edit

An outright full custom loop for a computer of those specs is not necessary. If you want the very best, yes a custom water cooling loop is nice, but if you start down that road I promise you will spend alot of money in water cooling, before long you will have upgraded your connectors etc. (I don't recommend using hose clamps and such, they are much more prone to leaking then compression fittings) and probably end up with shiny fancy rotary connectors with straight tube runs. if you get right into it, sure its a nifty hobby, and once you buy your equipment, you can upgrade your motherboard and cpu later, add in water cooled video cards, etc. The fittings are usually going to be ageless, and your 500$ worth of fittings can easily transfer to the next liquid cooled system. certainly an investment in future wicked looking computers. Anyhow thats my two cents with a ramble at the end.

+1 to cynd3r69

If you don't plan on ocing a lot ,i mean above 4.5 ghz , then i would suggest you to just go with cm hyper 212 evo.It will be more than sufficient,plus it is not at all loud.

hope it helps  

2nd the evo. or a better air cooler. the closed loop coolers like corsair don't do ANY better than a good air cooler, cost more, and are about just as noisy... you still need the fans. I don't see the point unless your doing a custom solution for all the components with heavy overclocks. And even then I don't think the cost would justify it for me. For 300 bucks he wants for a custom setup get better components instead of overclocking to where u need water cooling.

Just for the record, what was listed was an XSPC beginner's loop, and not an H-series LCS cooler. There is a significant difference.

At loads under 4.5ghz, both the 212 Evo and the Rasa/Raystorm kit will perform fairly similar. Current-gen CPUs don't generate that much heat at stock or with mild overclocks. That being said, if you are going to run it higher than 4.5 and closer to 5ghz, you are going to need a great 240 or good 360 radiator just for the CPU alone.

There are some real myths floating around about watercooling, so please do not advise someone for or against it if you do not know the facts for yourself. Please have a read-through of the watercooling sticky linked in my signature below. It sounds like this is mainly a personal choice type of decision towards a cooling solution. It really should come down to the OP and whether or not he wants one or the other- not something based on public influence with little knowledge of one side of the argument.

As for me- I would choose a good air cooler if you are only wanting to achieve what you have listed. The 212 is a great cooler for the money and will perform great. Watercooling is much more of a hobbist solution. For CPU-only cooling, it rarely is necessary, but can post huge temperature improvements when you introduce video card cooling into the mix as well. Let me know if you need any additional info. Also feel free to stop by the Watercooling forum; it is a subsection of the Overclocking forum: http://www.tomshardware.com/forum/forum-29-380.html

I have the Corsair H80 and LOVE it. It's a little bit harder to install than standard air cooling, but once it's in and cooling your CPU, it's worth it.

At 4.5 GHz after 30 or so minutes of Prime95 torture testing, my 2500k's temperatures hover right around 55-60 C, which is very respectable.

Water cooling is pretty much guaranteed to always work and will usually result in lower CPU temperatures than price-competitive air coolers.

Hope I helped!