I've heard just that: conductive paste is exclusively used to fill in the air gaps. If you were going for surface area, use a heat sink: that's what they are is increased surface area for air cooling. I reckon the idea with a water block is to absorb and xfer heat to the water itself, not to the surrounding air. You'd get better heat conductivity from perfectly smooth surfaces on the die and block. Since that is impossible, a tiny amount of thermal paste fills the air gaps and you're gold. In the meantime, lapping the block and die (I refuse to touch a processor die to sandpaper ... I've burnt one too many processors as it is and I don't want to tempt fate any more, which is why I'm migrating to water cooling on all my rigs) as smooth as possible will give you the best results with your silver goop.
What you suggest would make a kickass heat sink surface, but not a good water block, methinks.
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