An ex-Houstonian! Why'd you move? (Don't tell me...)
The term blowhole is reserved for a hole on the top of a case. Think about a whale...
You'll find lots of opinions on lapping, and a google search should hook you up.
In short, it's all about making the bottom surface of the waterblock as flat as possible, to improve the contact with the CPU core. A mirror finish is best. Residues do need to be cleaned off though (acetone, mineral spirits, rubing alcohol, ...). Check out Bladerunner's work at zerofanzone.
About shims... Let me explain to you the purpose, then I'll let you decide.
The idea is to prevent the CPU core from getting crushed, typically because a wb or HSF was mounted a little bit sideways, with a lot of pressure. Shims prevent that from happening.
A shim however needs to be EXACTLY the same thickness as the core sticks out from the CPU. If the shim is too thin, then the core isn't protected. If the shim is too thick, then you may not get a good contact between the core and the wb or HSF.
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