why Nitrous Oxide (N2O) is used:
if your running a wet system (The only way to go) (im not sure how a dry system operates), the nitrous is dumped into the intake tubing of the engine, substantially cooling the intake temperature.. this allows more air to be sucked down into the cylender due to the fact that it is more dense. theres your first power producing effect. when it is heated to the 500 degree point, the molecules use a small amount of energy to break down, and then you have oxygen (an oxidizer) and nitrogen (which wont really contribute to the combustion). the oxygen helps the extra gasoline that was injected into the intake to be burnt, cauzing a higher cylender pressure, giving more power (and shorter engine life if you arent careful!). the nitrogen is in there, and it just kinda is used to take up space as a "buffer"..
thats pretty much how nitrous works. 
now, lets say we just dumped gaseous oxygen into the intake piping.. you would get the same cooling effect, so you would gain power from that.. but when it enters your combustion chamber, you have pure oxygen (no nitrogen for a buffer) so things get a little more hectic.. IE explosions, melting engine parts, etc.
so really, allthough it might be cheaper to rigg up an oxygen injection system, go with nitrous!
if you want a real good site on how nitrous kits are put togeather (for example, if you wanted to build one), goto www.nitrous.info its a really good site..
also, if you are seriousally thinking about running nitrous, run two steps colder plugs, and back your timing off 2 degrees for every 50 horsepower boost.. thats just what Ive been told.. any comments on these rules would be appreciated!
hope I helped!
jude
and also a disclamer.. I have absolutally no experience with nitrous.. i am passing on the tidbits of info I have collected.. I believe this info to be right, but really dont have a clue!