It all depends on the meaning of "it's
out again." If that means the fan doesn't spin at all, then no, just the reverse. The purpose of the thermal grease is to enable optimum contact between the part in question and its heatsink in order to conduct heat to the heatsink to dissipate heat. If the thermal paste wasn't doing its job properly, the sensor at that point would be getting hotter and telling the system it needs more cooling. So the fan would spin faster.
But you say, "Could the thermal paste be causing excessive heat making the fan to work overtime?" which is confusing, since it seems to suggest the fan is working faster and therefore the "out" in "it's out again" means it's "out of whack" or spinning too fast.
And the issue might also be that you have a bad sensor. I think you should run the Hardware Test to see what's up. It should be on one of the discs you got with the computer. You can also see if you have a User Guide which will explain how to run the test. This would probably be in the root folder (the Macintosh HD Icon, or whatever you may have renamed it.) Run it in Extended.
http://support.apple.com/kb/TA27043?viewlocale=en_US
