It works, and highly refined mineral oil has been used for cooling high power transformers for a long time, but for a pc it's a stupid idea. You would have to make the case leak free for one, which is harder then it sounds. Also, think about the mess if the case sprung a leak, or you wanted to change a component, or if the case tipped over somehow. The thing would be so heavy that you would have to drain the oil whenever you moved it, even if it's just across the room. Oil cooling a pc just isnt practical.
Oh, and this has been posted in one form or another countless times here.