Pump failure is a problem is you are peltier cooled. With flat water cooling, I would think it will take time for the water block to heat up to dangerous levels. A hardware protection is good for flat water cooling. It is necessary for peltier cooling (this is my opinion).
The problem of software protection is that as pH said, the system freezes before it reaches the shutdown temp. Conservative settings solve that, but we may not want conservative settings.
If I want to be real conservative, I'll go buy a Dell, its guarenteed, and I don't have to worry (OK, this is ultra conservative!).
There are different ways to protect against water pump failure with simple hardware mods. There is even a very good one describe in this website, that directly reads the temp of the CPU core (it evens protects for uncorrectly sitted water blocks or heatsinks).
The water flow sensor looks very cool, but it is one more risk of leaks. Plus it looks a little complex.
A thermal protection, like any protection, must be as simple as possible, to prevent its own failure that would lead either to false alarms, or not be able to react to failure.
As far as over engineering, I personnaly think water cooling is at the base already over engineered (but it is a cool hobby!).
Just my 2 cents.
