Modern transformer oils do not have PCB's or other allegedly toxic ingredients. (the claims about PCB's weren't based on the best of science...) As a coolant in a standard PC WC system it would be lousy, lower heat capacity than water, and harder to pump.
However some of the radical cooling folks have been known to immerse their entire systems (except for the hard drives which DON'T like running on anything but air) in tanks of mineral oil, transformer oil would do the same thing. They then use phase change or other systems to cool the oil. Some radical overclocks can be gotten this way, and it saves the hassles of cooling individual components, but I personally doubt that it's worth it.
Gooserider
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Designing system, will have Tyan S2468UGN Dual Athlon MOBO, SCSI HDDS, other goodies. Will run LINUX only. Want to have silent running, minimal fans, and water cooled. Probably not OC'c
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