I had this exact same question about a week ago. I have a KT7-Raid board and a 1Gig Tbird @ 1 Gig. Not brave enough to overclock...yet.
During heavy gaming, i.e. UT, my CPU runs at 130-132F. It seems stable to me. My system temp never goes higher than 79F. These temps are from the Via Hardware Monitor.
Just for kicks, right after about an hour of UT, and reading 132 in Via, I rebooted and checked the temp in the BIOS. It was 128. That's only a four degree difference. There was probably about a 20 second delay between the reading I took w/VIA, and rebooting to BIOS. I don't think the temp would drop 4 degrees in 20 seconds. WEll, maybe, but anyway...I'm new to AMD products. This is my first. I must admit, so far I see absolutely no difference, quality-wise betwixt a TBird and a PIII. I don't know why I didn't build an AMD system sooner.
As I was saying, I'm new to AMD chips. When I first saw these temps, I panicked. My old PIII550Enever got hotter than about 85. And that was in a tiny micro ATB case. According to the folks on this forum, my (and your) temps are normal. I'd like to see the CPU never go above 120 though. I see some case mods in my future.
BTW, I'm runing Win 98SE. It loaded up the first, second and third times with no problem. (I reformatted my HD 3times because I couldn't make up my mind whether to partition or not.) I've had zero problems.
I just wanted to let you know that your temps are not off the mark. I have the exact same 1Gig CPU that you have and we have similar temps. Make sure that you put that HSF on correctly and that you have at least an exhaust fan in addition to the HSF on the CPU. Cheers.
EDIT EDIT EDIT
I forgot to add that when not gaming, just surfing or typing in Winword, the CPU idles at about 85-90F. Sucker heats up when fraggin'.