To the best of my knowledge, a p266 can't be overclocked - it's the fastest chip of its class.
You would be better off getting a new motherboard, processor - and probably case, if yours doesn't support the ATX form factor.
This needn't be expensive - you can buy boards that support up to 1Ghz (or beyond) processors, at least ATA66, 1.5Gb RAM and 133MHz FSB for around £80. With a board of this specification, just about any Pentium II/III processor will feel like a significant improvement over your current setup!
So, together with a case (say £50 for a reasonable quality one) and chip (around £150), you're looking at less than £300 for a future-proofed PC.
You can overclock processors with most modern motherboards simply by adjusting settings in the BIOS. I particularly like Abit motherboards, which allow manual changing of clock speed, multiplier and core voltage without damaging your processor. If the system detects that your chosen settings won't work, it forces you to restart and adjust the settings.
I have found that you can get at least a 20% boost in performance this way - ie a PIII 450 can be overclocked to 600Mhz just by upping the multiplier to 6x from 4x, and focing the core voltage to around 3.2.
Different processors require different treatment - and there are some excellent sites which cover overclocking.
I would have to disagree with you, Searching, overclockers change motherbord settings just to get that extra bit of performance out of their PC. As long as you are prepared that you might just fry that processor - and maybe the motherboard (unlikely), then I see no problem with it for hobbyists.
In a commercial environment, however, I agree. There is no reason to change anything relating to processor or clock speed, because you will invalidate your warranty.
