It's a pretty easy upgrade to do. A couple of notes though:
1) After you install the new processor (make sure you are grounded and you don't bend the pins!), make sure you clean the top of the processor thoroughly with a lint free cloth (a coffee filter can work) and isopropyl alcohol. Make sure the alcohol evaporates before applying the thermal paste. Make sure you clean the corresponding portion of the heatsink/fan too
2) Regarding the thermal paste, in this case less is more. Artic Silver 5 works nicely, You want to use an amount that resembles an uncooked grain of rice. Spread it over the core evenly with an old credit card.
While your computer is apart, you may want to opt for a T61 fan if you can find one that fits in your computer (~$15). It's quieter and I've found that my machine runs cooler with it.
The thermal pads I believe only contact the GPU and Chipset. If they are in good condition, you shouldn't have to change them...
Thanks for the tips, i have the integrated graphics so the fan noise/heat is not an issue on this model, but If I can find one on the cheap I may do it anyway.