I'm working on something similar - specifically a home brewing immersion heater controller.
I'm using a Duemilanove for the development but I've put a socket for a ATmega168 on the PCB with an oscillator attached. The idea being that once I've developed the software, I drop £4 of micro in and not £25 of Arduino.
On the socket, I've got a 16MHz crystal and two 100nF caps on the supply lines. Everything else is connected to the pins that the Duemilanove plugs into as per http://www.arduino.cc/en/Hacking/PinMapping168
re: temperature control how are you proposing to sense the temperature? I'm sensing the temperature of the wall of my metal heater tube and that is about 3ºC higher than the average temperature of the brew I'm heating.
Plus, at low temperatures, convection currents in water are reeeeeaaallly sloooow. Some kind of agitation / mixing will achieve a much more even temperature and simplify your sensing requirements