I would say that if it's getting that hot you should do a couple of things.
First, turn your processor down in "Energy Saver" in your System Preferences to "Reducted" in both the AC power and battery power sections.
Second, if it still remains that warm after you turn the processor down I would definitely call Apple and report it. They may not do anything and they may do a couple of things including sending you a new ac adapter. The good thing is that if the logic board or screen goes out you have a case number logged and it may be the fault of the excessive heat.
I have the 1Ghz and it does NOT get excessively warm at the ac adapter site. I've heard complaints about this but have never experienced it, period. My system gets warm, not hot, the first fan runs continuously but not the second (louder) fan and I have no peeling paint or other issues. (Well, I have a display that has an area of uneven color for which it was sent in yesterday, but nothing else.)
Good luck.