Air to Air:
     For air to air intercoolers there are two main styles:
1.  One has the heat exchanger at the front of the car and long pipes that bring the air from the turbo up to the front, thru the intercooler, and back to the motor.  This piping can add 2-3 psi pressure drop.  This extra pressure drop requires the turbo to work harder to overcome this pressure loss and therefore the air will be still hotter. Two other drawbacks are that the intercooler will not really help much if the car is stationary and the amount of piping that will be filling the engine compartment.
2.    The other option is to put the intercooler on top of the engine and add hood scoops/ducting to provide the air.  This is what was done by Ford on the Mustang SVO's and the 1987/1988 Thunderbird Turbocoupe's.  This helps with the pressure drop problem, but the intercooler is now placed on top of the engine, right above the exhaust manifold.  This results in hot air rising up from the exhaust manifold and heating the intercooler when the car is standing still.  However, this has got to be the cheapest and simplest set-up.

Air to Water:
     The air/water intercooler is more complicated but should work much better.  This system works by adding a separate cooling  water circuit.  (You don't want to use the engine coolant because it is too hot.)  The cooling water will pass through the cooling side of the intercooler (in place of the air) then it will pass through another heat exchanger at the front of the car, to reject the heat that it picked up from the turbocharged air.

In my opinion, this was the best of both worlds.  The system had the short intake path of the Mustang SVO arrangement, resulting in a very minor pressure drop in the intake piping.  It also provides improved heat transfer since water conducts heats so much better than air.  (think about cooling a hot spoon by blowing on it, or sticking it under the faucet.)  Because the intercooler is surrounded by a water jacket, it is also less susceptable to the chimney effect of being located directly above the exhaust manifold.  The drawbacks of this system include added complexity and expense.

With these factors in mind, my feel that I have built an affordable high-performance air/water intercooler for the Merkur.