Sounds like a simple operation, right? Well if you've never done it before, it could be a little difficult. I've personally seen a few processors covered with an entire tube of paste, and it's not a pretty sight. Depending on who you ask, you might get a few different answers on how the goo should be applied. Hardware Secrets throws in their 2 cents, with a 12 page guide on how to correctly apply thermal grease.
"With processors working at higher and higher clock speeds, a certain concern with thermal dissipation is necessary, because the higher the clock used, the higher the heat produced. To give you an idea, a 486DX2-66 dissipated something between 3 and 6 W, while a modern Pentium 4 processor with 3.8 GHz dissipates 115 W! In case you don't adopt a thermal solution compatible with the specific model of processor you use in your system, several problems can appear, such as random resets, freezes, reduction of processor lifespan, and it can even make the CPU burn, in extreme cases."