Is it better to use an offset or manually set CPU voltage (with respect to CPU longevitity)?
Both temperature and voltage kills a CPU. A high voltage spike can kill it quickly. In your case I wouldn't worry though. The voltage spikes you have are still low. The Intel spec sheets specify the max vCore VID as 1.52v for that processor. Now, I wouldn't actually run the processor at anything near that, but on the other hand I doubt a voltage spike up to that would kill it either.
Faced with the very same question you are posing I went with the offset. I figured the bigger killer would be the extra idle voltage and temperature. And I have a much higher overclock than you do. With the overclock you have I would still expect to get 10 years of life out of the processor either way.
In response to music2myear.
It's not just heat that kills a processor. Breakthrough is correct, the interconnects degrade with increased voltage:
V=IR
If you increase the voltage (while resistance remains constant), the current will increase proportionally. Increased current running through interconnects leads to electromigration which transports conductor material away from the interconnect due to momentum transfer between electrons and metal ions.
From a simplistic point of view you could think of it as a river eroding its path. Basically, if the increased current degrades the interconnects, they will eventually fail. All CPU's have a finite lifetime, but increasing voltage, and hence current will decrease its lifespan.
That said, I recommend offset voltage, it will result in far less current passing through your processor, and the small voltage spikes are of no consequence at 1.25V.
Just to add an extension to Mr Alpha's answer, I also found this interesting guide on [H]ard|Forum in regards to overclocking on the Sandy Bridge chipsets. In regards to SpeedStep settings:
It possible to overclock while keeping speedstep enabled and use the offset voltage method for Vcore increase this will provide the overall best in temperature and eatsink performance as well as generally efficiency and extension of the lifespan of the motherboards its components and the CPU. This is due to the Turbo Multiplier working and exucting ramping as Intel intended. Example leaving all CStates and Speedstep enabled will allow the CPU to idle down in Vcore and frequency (1600MHz) and ramp up when under load to 4.8GHz when needed.
Since I have a modest overclock, and have all power-saving settings enabled (there are no stability or performance issues in doing so), I believe that keeping the CPU voltage in offset mode would be the best choice in this case.
For anyone going down this route as well, do keep an eye on your temperatures and voltages using a temperature monitoring tool (e.g. HWMontior or HWiNFO). Pay special attention to the maximum CPU core voltage, and see if that fits within your needs. Also note the effects of Vdroop (see my comments on Mr Alpha's answer for details).