Where exactly is the T-1000's CPU located?
Here are some clues from the official novel as to the nature of its design:
"It didn't have a wafer-circuit brain to think with. It was something on a completely new level of artificial intelligence. The molecular brain acts like the rest of the thing, a liquid. And now it bubbled with possibilities. All of them lethal. "
"The concept of pain had never factored into the sensory sphere of the liquid machine. Pain was an indicator of damage to a part of the organism. But this 'organism' didn't have parts, except on the molecular level. And its molecules were each primitive, miniaturized versions of the total machine. If any section parted, the separated halves would revert to metal poly-alloy. The only default command it had in molecular memory was to find the main mass again and rejoin it. Each molecule had a range of fourteen kilometres." [page 132]
"Skynet itself had hesitated before making this latest weapon. There were unpredictability factors related to the thing's longevity and ability to process commands without interpolating its own priorities. It was so volatile a construct, that only in the last throes of utter defeat, when the plug was about to be pulled, had Skynet sent the terminators through time to change the outcome of the war. And only in the very last micro-second before shutdown, had the hypercomputer sent the T-1000... Skynet had no choice. "
Why does the T-1000 torture Sarah Connor in the steel mill?
The T-1000 knows that in order for John to come out of hiding, he needs to put Sarah in danger, because John came to her rescue at the psychiatric hospital. Afterwards, the T-1000 is then able to mimic Sarah just like he did with his other victims. In doing so, all he needed to do was call out John's name and let John see "his mom" hurting so he would go to her, therefore exposing himself to the T-1000. Luckily for John, the real Sarah was able to get back to him in time.
Some consider this point in the story a plot hole, claiming the T-1000 did not imitate any of its earlier victims until they were dead. However, the T-800 explains that the T-1000 can mimic anything it samples via physical contact; it does not require the individual to be dead before it can take his/her form. The guard at the psychiatric hospital was sampled when he walked on the T-1000, who fully copied him before killing him. One can presume he was preparing to kill Sarah when the T-800 intervened, giving her time to escape.
The T-1000's decreasing efficacy is explained in a scene which was cut from the theatrical version of the film but is able to be viewed as part of the director's cut or on most versions of the dvd as a deleted scene. After being frozen in the liquid nitrogen and then shattered, the T-1000 starts to show evidence that it may be malfunctioning. As it is walking, its feet, up to about the knee, involuntarily imitate the floor, and its hand bonds with and imitates a railing.
The T-1000 itself seems confused by this but is unable to stop it. In the theatrical version, the only evidence of this is the slight flutter that you see after it crushes Arnold's arm in the gear. This may explain why it moves much more slowly during the final conflict, which allows Sarah to escape while it is dealing with the T-800.

How can the T-1000 go through the time machine? It has no living tissue!
The T-1000 is liquid metal; only living human tissue will go through the time machine. The T-800 can go through because the metal endoskeleton is surrounded by human tissue. But the movie leaves some mystery as to what the machine actually is; when in its human form, the T-1000 might actually mimic human flesh. However, since the film really never specifically explains on the situation, it's considered a plot hole.
Reese states in the original film that it has something to do with the field generated by a living organism, which is probably bioelectromagnetism, but doesn't elaborate further. That doesn't necessarily mean that only human or animal tissue can travel through time intact. It may mean that anything (machines included) that generates the proper kind of field can time travel. Since the T-1000 is so far advanced, it may generate the right type of field that earlier models could not without human flesh.
Another option is that the T-1000 was outfitted with a simple layer of epidermis just before it was sent back through time. T-800s have a complete, fully functional skin with blood supply to keep the epidermis in shape and to ensure that wounds will heal, in order to keep the Terminator passable as a human. However, all the T-1000 may need is a simple layer of skin without blood vessels to get him across time, which he can dispose of after time-travel.
Technically, we never really see in what state he arrived, and there was some time, maybe up to half a minute or so, between the electrical disturbances from the time-travel and T-1000's first on-screen appearance, where he kills the police officer. Perhaps he shed the skin in that short time.
Are there other ways besides extreme heat to deactivate the T-1000?
Probably. This is suggested by a few shots that were cut from the Theatrical Version, and were restored in the Special Edition. After the T-1000 is frozen and thaws up again in the steel mill, he follows John, Sarah and Terminator. As he walks he grabs onto a steel yellow/black striped bar, and something strange happens: his hand automatically 'fuses' with the bar, mimicing the striped color pattern. He pulls himself loose, looks somewhat confused, and changes his hand back with a fast flick.
He then enters an area with a metal profile floor, and his feet uncontrollably take over the color and texture of that floor. The last shot shows John with the two Sarahs, noticing that the feet of the first Sarah seem to be fused to the grated floor. These scenes show that the T-1000 has indeed been damaged by the nitrogen freezing, as he has difficulties maintaining his current shape; his shapeshifting abilities seem partly out of his control.
This indicates that the T-1000, although extremely resilient, still consists of fragile microtechnology that can be damaged. Being metal, he could be vulnerable to certain acids as well. Also, because of the heat from the steel mill, it is possible that the extreme heat was assisting in the adhering to the metal railing and grated floor.
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