Awesome low budget build.
Yes it can run new games on high settings. Although you won't max out very recent games in full HD, you may in smaller resolutions(this means stress for your CPU but it doesn't matter)
You can run BF3, Skyrim, Crysis 2, Sleeping Dogs, etc. on high/ultra settings. Try them yourself and let us know
That case is a bit small, so check the temperatures while playing. If they don't go beyond 65-70°C, it's fine. You should be worried if the temps hit over 85°C.
Don't go with watercooling unless you're an expert. The risk is destroying the whole computer. If some hose leaks, say goodbye to everything inside the case.
The easiest/cheapest cooling system are fans.
Once you hold the computer in your hands, check how many case fans it has, and also check which ones are intake and which ones are exhaust.
The basic good air flow is a front intake and a rear/top exhaust.