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I don't think you would get oil warning light. It's not that critically low, but I would also say that is not healthy. Also, did you check alternator's voltage at 1000 RPMs?
It's a white grease used in electronics to dissipate the heat, you would see it on an amplifier for instance between the power transistors and the finned heat-sink.In this case its conducting the heat from the block into the thermistor inside the sensor, I have my doubts it's necessary in this case, even simple grease would conduct enough heat to the tiny thermistor.