According to the
AMD Athlon Processor PGA Data Sheet, page 21, Table 1 (and a couple of other tables, also) says the maximum temperature of the 1100+MHz processor die is 95C (203F), and the 1000MHz and lower processors list max die temp 90C (194F). The same table also shows the 1000MHz processor typically dissipates 49W, max 54W.
Technically, you are well within limits. That little tiny piece of sand and copper is putting out an awful lot of heat for its size, so I would expect some high temps from it. Still, from what I have seen from the systems I have built (office and friends'), 120F (49C) ain't bad. Still, well-implemented passive cooling might be able to help that temp a little more without getting crazy with fans (depending on how things look in your case).
A friend of mine with a nicely cooled Antec SX1030 (I mod'd it for him) with a 1000MHz T'bird on a Abit KT7 RAID with a PAL6035 and YSTech HSF from memman.com, and an Asus V7700 Deluxe, reports at most 42C when he is raging. I put in a Sunon 92mm intake on the far bottom front along with a Sunon 80mm intaking over the pair of IBM 75GXPs. A Sunon 80mm and one of the free Antec cheapie 80mm's exhaust the back of the case near the processor. He did not want me to add a second fan to the P/S (to further help exhaust) yet since he wanted the P/S to burn-in for a few months before I break that warranty seal.
First, are you sure the HSF is properly attached to the processor? Are you using a decent HSF, that has shown well in the many reviews and comparisons done all over the web? Are you using a good heatsink grease (like the stuff at Radio Shack at a minimum)? Second, do you use intake and exhaust fans? Do what you can to unclutter the cables that may impede the airflow as it intakes the bottom front and exhausts the top rear (and near the processor, if possible). Use cable ties and even wire loom to get those cables out of the way (there are many articles about rounding cables). Also, leave the PCI slot below the video card open (with the slot cover removed) and try to place a short card in the next slot occupied below the video card.
Just some things that I have found helpful...