It shouldn't pose any problem to do, but I don't imagine you'll see much benefit. Arctic Silver is essentially a amorphous thermal compound to give higher thermal conductivity between components and their heat sinks which are then usually cooled down by some active cooling system like fans or liquid cooling. Since phones use passive cooling methods, doing this would just speed up the time the small heat sinks on the droid reached thermal saturation and wouldn't really do anything to help them get rid of the heat. If the droid had a metal back plate to where th components were, instead of plastic, and you were really careful applying the compound you could see some improvement by creating a larger heat sink that it better exposed to ambient air, you might get some better cooling. It might be a cool project for someone willing to risk messing up their phone.
Another thing to think about is practicality. With computers and consoles, power consumption isn't really much of an issue since they get it right from a direct source. But phones have to think about battery life. With higher clock speeds you CPU increases the current traveling through the system by making transistors oscillate more. More current obviously means the battery will be depleted faster but it's not quite as simple as that.
Warning: Long boring rant ahead! Skip the next paragraph if you don't care.
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The power dispersed through a resistive material follows a formua P=R*I^2 With P being the power lost as heat, R being the electrical resistance of the material, and I being the current running through the system. This means the more you overclock the efficiency drops exponentially. Semiconductor materials, which practically everything in a phone is made up of, are also notorious for having resistivities that are easily affected by heat. Which means as the device heats up the resistance of the components increase and you lose even more energy as heat.
The point being, that even if you can deal with heat dispersion somehow, you will still lose battery life exponentially compared to linearly overclocking the device. Generally, people only want performance up to a certain point until it starts seriously affecting their battery life. We see people increase clock speeds in CPUs whilst keeping their efficiency roughly the same by improving the manufacturing processes to produce smaller die technology (terms like 45nm chips) which allow you to charge the transistors while using less current and voltage on the chips. This reduces the amount of energy lost as heat.
All CPU's also have a maximum clock speed they can effectively run at a certain voltage. The high the voltage the faster the transistor can switch. These transistors need to be able to switch much faster than at least one clock cycle for a safety standpoint. If the processor can't switch it's transistors within a single clock cycle, the CPU starts to act strangely and the device will either run unexpectedly or not at all. When this happens you need to increase the voltage to makes the transistors transition faster. Eventually you'll either reach a point where the transistors can't physically transition that fast or, more likely, you'll reach the point at which the voltage exceeds what the chip can run without damage. But to get to the point 1.25 GHz is about as high as any of the OMAP 3430 can ever be expected to run at normal voltages. Anything higher than that and you'll have to increase the voltage for it to run correctly, which means even more power loss since Current(I) is equal to Voltage(V) divided by Resistance(R).
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Long story short. Trying to overclock any higher than what most people have done will require extensive modification to the phone and kernel to run properly, and you'll probably have seriously pathetic battery life sustaining those clock speeds. Possibly less than an hour of battery life, since some people say they get 1-2 hours constantly running at 1.2 GHz. If you want to do it just because you can, then by all means go for it. But, if you're expecting the phone to be usable everyday like that, don't count on it.
