I've got a new stainless steel water block. By changing the water block, I can now use plain tap water without adding the 'milk'. The temperature dropped by about 2-5°C, which is a great improvement. I used that folded paper as spacer because the new water block is thinner than the previous one. 

The new stainless steel water block

After looking at the benchmark, the performance boost by upgrading from Celeron 300 @ 450 to Celeron 566 @ 850 was quite huge. So I decided to upgrade my system since I was getting very low framerates when playing Grand Prix 3, especially when there is a lot of cars in the screen. The new Celeron I bought could go up to 850MHz at 1.75V using the stock Intel heatsink. However, the temperature was a little too high, hovering around 46-48°C at full load. So I decided to reuse the water cooler.

After installing the water block, I began testing. Everything went wrong. I couldn't even get to boot into Windows 2000! But the temperature reading was lower than with the Intel heatsink and the water block was cooler than I had expected.

After some research, I discovered that the Celeron core was too small, and the contact point between the water block and the core was too small. Steel does not transfer heat as well as copper, so thermal transfer was only concentrated at that small point without spreading to other parts of the water block. That was the reason why the system crashed when booting into Windows.

To solve that problem, I used a copper plate, a very thin copper plate - only about 0.5mm thick. I place it between the processor and the water block so that the copper plate acts as a heat spreader.