I purchased my N3 from Newegg and one of the review posts at Newegg said that they removed the thermal pads and replaced it with paste. I tried it and doing this is a bad idea in my opinion. The heatsink is stepped, and there are bumpers that keep the heatsink from touch the motherboard. Wtihout the thermal pads, visually things fit very poorly. I would highly recommend that you not replace the thermal pad with paste.
During the heatsink removal process I damaged the thermal pad. Because of this, I purchased some 1mm thick Fuji Poly that I ordered from Frozen CPU. I also replaced the 15mm high fan with a 10mm high Cooljag Everflow 60x60x10 - R126010DL .
I also connected a Fanmate speed controller to the fan and slowed the fan down to around 1600 rpm. In order for the fanmate to fit, you must not have a hard drive. Either that or you will have to the wires run out of the case and have the controller external. I had a hard drive, but it boots in 30 seconds compared to around 35 seconds for a SD card. Not much of a difference, so I went with the SD card which made room for the Fanmate.
The combination of the lower profile fan (the stock one is practically touching the cover) and the Fuji Poly pads worked fantastic. The thing is whisper quiet (and I am pretty picky), and my temperatures are around 95F when playing back HD H264. The temperatures are lower than without any mods and the N3 is substantially quieter, a winning combination.
Hope this helps someone. For the money the N3 is hard to beat. I like it so much that I ended up ordering a second one.