1. If you want. If you want to eventually OC, get a nice HS&F, and get some AS Ceramique or AS5.
2. Never done it? Forget the AS5, get the Ceramique (easy to use, and being non-conductive, you can be sloppy).
Clean the chip and bottom of the heatsink, using a lint-free cloth, or cheap napkins (like fast food places use, that aren't porous at all). I use such napkins all the time for it, but technically a lint-free cloth is better. Alcohol is safe, but you might want to wait a bit after use, since some of it is water. For the heatsink, acetone works well, but may be hard to find (nail polish remover with oils and such in it are not the same thing!), and is likely very bad for electronics. There are dedicated cleaners, AS now makes one, but I've not tried them.
Put a small amount on, like pinhead-sized, and use a new razor blade, or smooth flat plastic edge, to smooth it out over the bottom of the heatsink base or top of the chip. Get as thin a layer as you can while keeping it even. This may take a few minutes, and you may need a little more TIM (aigomorla's rice grain is probably a better size estimate for a IHS). With a thick one, like Ceramique, just under playing card thin is about as good as it gets, IME. Make sure it's even to the naked eye. If you can get it really thin, it doesn't hurt to do it on the HS and the chip, but I think it's a waste of TIM.
The installation and then heat from the CPU will cause it to thin out. Ideally, if you remove it a week or more later, the area over the die ot middle of the IHS should just have a glossy shine to it, but no obvious layer of TIM near the die, but with a ring around it (where it was forced out from the pressure). So don't pile it on. Get just enough to cover the area you need, and no more.
Then, follow normal install instructions.
3. See 1 and 2. The performance difference isn't great, but it is there, and IMO, Ceramique is the most idiot-proof paste out there. So far I've only had one bubble using it, and it wasn't fatal (I think bubbles are less likely on chips with a IHS, but I could be wrong).