Sorry, just referring to generic resistance sensor elements from places like RS or even Jaycar (technically a VDO temperature sensor is an RTD

). Although very cheap it would mean having to figure out a way to mount them.
Video Link: http://en.wikipedia.org/wiki/Resistance_thermometer
Thermocouples are a millivolt source, making them difficult/impossible to read with standard ADC on the atmega chips. They require external amplification to read, so while they are cheap to buy and replace, they require additional circuitry to run them, although you can buy small IC's that include all this for you. They are not as easy to use as RTD's which are very simple to set up in a simple voltage divider circuit. They are now typically used only for high temp measurements (i.e. EGT's) as RTD's are much more consistent for lower temps. So yes thermocouple fine for EGT, but I'd use RTD's for water/oil/transmission temp etc.
With any temperature sensor the key is the location. When I played with a thermocouple driven fan controller I first placed the thermocuple on a head bolt after reading how this had been done elsewhere. Big mistake. The temperatures fluctuated wildly depending on how hard I was pushing the motor and consequently the fan activation was sporadic. The coolant acts as a good damper for the measurement of temperature and is a good reflection of the average temperature of the engine. A simple 1/8npt vdo (RTD type) temp sensor in the top radiator hose provided a very stable output that was useful for controlling the fan. This was with a simple switch though. Technically speaking you could apply a digital filter to the signal from the head bolt mounted sensor in the arduino to average out the temps but to me this is a band-aid fix rather than implementing a proper solution.
Similarly, when measuring EGT's you want to know as best as possible the instantaneous EGT's so you can back of if your about to melt pistons etc. A thermocouple mounted on the outside of the exhaust will be filtered too much by the slow uptake and dissipation of heat from the exhaust pipes and average the temps. If you have a sharp rise in EGT's due to over boost or something then you may not notice it till too late.
Both the above are example of why I would stick to standard automotive sensors. The R&D has already gone into them, and its just a simple matter of buying/making adaptors.
Also, don't forget to save some digital pins for outputs for alarms and relays etc,
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