That's probably the issue right there - you only need to apply it to the CPU itself.
You want to apply a small drop right in the middle of the processor's heat spreader (about the size of an uncooked grain of rice). Then, install your heatsink (making sure to apply pressure straight down).
Also, Arctic Silver does have a curing time (roughly 200 hours or so), and it can help to power down the system at night for a couple of nights as well.
More information can be found
HERE (documents in PDF format).