apart from all the good arguments raised here so far, water cooling
allows for a more consistent temperature when hot, and less difference
between cold and hot. This is important because we are dealing with
metals here, most of which expand as they get hotter. Air cooled
engines typically require bigger 'gaps' between most moving parts,
especially the piston and bore which reduces performance by a lot when
cold, and still a bit when hot. It also allows fuel/oil to flow past
and into the case where it wont do much good. Water cooled engines can
typically run much tighter tollerances almost everywhere which results
in a longer lasting better performing machine.