I double check your orientation of the chip in relation to the socket. There should be some firmness in the installation, but not too extreme.
See page 2-7, of your mobo manual, for the correct installation of the CPU. there is an alignment key that you need to be aware of on the CPU that will match up with the s775 on the mobo. See page 2-8 for that information.
Thanks lunyone - I installed the cpu. It was a little firm - and when I looked in the manual and some "how to" websites, they never stated how firm it's going to be - and that's what the whole issue was.
Now that the CPU is installed I have another question - the cpu did not come with a heatsink, and I have another heatsink that I bought separately. Looking at the heatsink now, I don't see my Core 2 Duo E8500 on the Applications table. The highest it's got is E6700. Can I install this heatsink anyway?
Yeah you should be able to use it. I just wouldn't try to OC that chip much with that CPU HSF. Make sure you use some thermal paste on the CPU HSF before you install it. It normally should have it already applied on the HSF, but just double check it.