The 65w chips do put out a little more heat, but if you add some smaller fans to the front of the unit it helps a lot.
I've haven't read about a lot of temperature problems with the lower-clocked 65W dual-cores.
The stock celeron 420 doesn't have speedstep. I put in a dual core 65W celeron e1500 that's clocked higher (2.2GHz v. 1.6GHz), but does support speedstep. The result, the e1500 actually idles about 3C lower in my s4200.
I still need to install WHS and test the CPU under a real load. Speedstep provides frequent downclocks during split second lulls in otherwise heavy CPU usage, which still helps control temperature. So I expect the e1500 to have about the same load temperature as the 420.