Hey Brian,
I know no example of ER-20 collet on 65 mm spindles, you will find it on 80 mm or larger spindles. On the Onefinity Standard Series with Z-16 slider, the 65 mm was not such a good choice because the spindle does not clear the stepper. With Elite Series / Z-20 slider, there is not this restriction. Cheap chinese 65 mm water-cooled were reported to have hairline cracks with coolant leaking. 65 mm with water cooling is obviously a bit small for the ingredients since there is the additional water coolant sleeve.
With air cooling, the fan rotates with the spindle rpm, which can be a problem on low speeds. Water-cooling makes cooling independent of spindle rotational speed, which means good cooling even at slow spindle speeds, which is good for milling metals and plastic. But if you want to mill only wood, you will use high speeds, so the fan will rotate fast enough, so the decision is mainly if you want to avoid the plumbing.