First of all the thermo paste needs a bit of time to set, also as phish stated....if the temp is cooler with the case cover off then you don't have the air flow correct.

I don't know much about your MB but some have the AGP port located closer to the CPU socket than other MB's and the heat from the GFX card could be going into the HSF, or the HSF is taller than the stock HSF which places it directly above the GFX core and the heat from that is getting to the HSF....could be many things ? One way to test for this is to check temp with the cover off, PC setting upright, then lay the PC down on it's side and check temp.

Did you lap the heatsink or did you say man thats so shinny it must be good ?