Thanks, br1t1shguy for clearing some of that up - I was just about hitting myself on the head reading this thread until your post came up.
As far as Watercooled Turbos go (as in Turbos with a coolant jacket in the center housing) - they are commonly used in OEM Turbos and WITH GOOD REASoN!
Obviously, Turbos get very hot, and although heat is what drives them, heat can also destroy them, in that overly hot oil both breaks down (thus failing to properly lubricate) and can break through the Oil Seals, which is bad. However, by pushing coolant though the center housing, the temperatures are greatly decreased, taking much of the strain off of the Turbo and adding to it's life span and that of the oil.
In our engines, the most common way to hook this up is to put the Turbo inline with the Throttle body coolant line. This line starts on the head by the upper radiator hose, and ends at the throttle body. All you needs to do is take the line, connect the head side to one side of the turbo, and the throttle body side to the other (the coolant can flow either way though the turbo - it doesn’t make a difference), and wa-la, you're done. I've had it setup like this for months, and it works great. The Throttle body coolant passages really don't do much of anything import (some people disconnect them all together), and exist simply to heat it up to keep the plate from sticking on cold starts. So don't worry about Water-Cooling the turbo having any negative affects on the rest of your cooling system.
If you have a water-cooled housing, and you choose to NOT connect coolant lines to it, you're not going to hurt anything, and the Turbo will function like any strictly oil cooled unit (such as those that come in the Drag or MaxRev kits), you just won't have the benefits (long Turbo and Oil lifespan) that you would have otherwise. I do want to get the point across though, that "oil cooled" is really a misnomer - the oil coming in can easily absord enough heat to damage the Turbo, where as coolant simply flows though and does what it's supposed to - lower temperatures.
That said, I strongly suggest that if you have this option you take it, as if you're capable of planning and installing a turbo kit, cutting a coolant line shouldn't be even remotely difficult for you, and it really does keep your oil seals from breaking down.
Hope this all clears up the confusion of this thread. If any of you want to know more about this, I suggest you read Corkey Bell's "Maximum Boost."