If the CPU is getting that hot then most likely the clips that hold the fan housing on aren't secured properly. I've built quite a few PC's and when I see temps like that it's usually the clips not being secured correctly which creates a gap between the CPU and the heat sink.
It's an easy mistake to make as it's hard to see if they are in all the way.
I would replace the TIM with something better, artic silver, OCZ freeze, are good ones to use as are many others. Then make sure those clips are secured properly which sometimes isn't easy to get right.