At a recent thread at James Randi's JREF website, a commenter named wdunlap began positing the necessary existence of an intelligent designer and seemed to have some difficulty grasping the answers being put to him by the local Randiites. Being blessed with nothing better to do, I weighed in. I recommend you read the post and the entire thread (as well as my bits :)); it's interesting and entertaining and will provide context.
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Sayeth wdunlap:
Coyne in his evolution book states that male testes were originaly developed withing the abdomen of a fish and later migrated outside in land males. How the heck did this come about? From what I can see, the testes need to be outside or the sperm would be damaged by too much heat. It is almost like someone intellectually decided this.
Speaking of fish, you should read "Your Inner Fish" by Neil Shubin. A great read on humanity's fishy ancestry.
Now to answer your question with a question: have you ever touched a fish?
Fish don't need external testicles because fish (a) live in a cold environment and (b) fish, being cold-blooded, don't generate the same amount of internal heat as warm-blooded land animals do. The danger of fish sperm being damaged by heat simply isn't there to the extent faced by land animals. Indeed, because of the low temperature of their environment, fish sperm need every little bit of the heat available in a fish's body, hence the internal testicles. "Your Inner Fish" describes this and many other anatomical rearrangements.
I find it strange how you report first-hand observation of fish in your own home changing gender but you can't imagine how external testicles could have developed about over several million years. I think it's time you took some members' suggestions on board and did some serious reading on evolution and not just wikipedia either: actual books by actual scientists involved in the fields they're discussing. "Your Inner Fish" is a great one to start with. Or you could just visit talkorigins.org!