Just my thinking this .... I believe the updated firmware ALSO updates the PIC firmware and it is this (the PIC firmware) that causes / results in the diminishing hashrate on the newer firmware. If you have a copy of the old firmware, I'd be tempted to extract that hex file from the old firmware and put it in the overlay directory then rebooting (of course, do backup the existing hex file before copying the older one, and that at your own risk!).
Also, repasting, when done, needs to be preceded by a thorough clean and removal of the old paste. Again, just my thinking, but I found that using slightly thicker thermal pads gave better results on the S3's I had than any (recomended) non conductive thermal paste I could lay my hands on.
I don't have a miner open and didn't notice a PIC when I did. May I ask where is it?
EDIT: the chip shown in the image is NOT the PIC I was refering to, that one is for the ethernet (which it resides next to)
If you SSH into your rig, the hex file resides in /overlay/etc/config and is named miner_pic.hex and I believe this is reflashed every time the rig has a cold / power reboot.
http://s12.postimg.org/l87wy1pm5/WP_000124.jpg
Unfortunately the S3#2 from Pines in Florida having a falling hashrate went thru some testing. First test I did was swap controller boards and S3#2 still dropped in hashrate. After more testing I took one of the boards out of the S3#2 and put it in my excellent, which had arrived in an unopened box, S3#1 from Cryptocrane in the mid-west. With that both miners would drop in hashrate at about the same rate. I left it like that for quite a while having them restart cgminer at low hashrates then about a month ago put them back the way they were except S3#2's controller was in S3#1 and since I would need reconfigure the settings as the controller has the miner's identity, I left it but it does run S3#1 at 440 rather than 441. So the dropping hashrate does not track the controller board and its PIC. Perhaps what you're saying is that the PIC can be tweaked to give a false reading because as is the falling hashrate stays with the original boards on S3#2.
And on another note, with a cold morning the other day and S3#1 in my living room, I decided to try a higher frequency (for the first time on the miner) and raised the frequency to 237.5M as it is the next step up on this firmware, this instead of propane heat. It ran fine, no x's for the couple of days I ran it at that 237.5M and got a hashrate up around that of my S3+'s although the S3+ firmware has a frequency available between the 218.75M and 237.5M choices of the S3's.
It warmed up yesterday so I put the frequency back to 218.75M and restarted. Now my good S3#1 wouldn't come up to 440 any more and was sticking around 435. I had moved it a little and considered that since it's been running well since putting the boards back to their original miners (except the controllers) and since my dog has a bed in the clear space near the miner, and although I have a layer of cheesecloth filtering the fan intake, perhaps moving it a little caused dust to dislodge and have an effect and that the lower hashrate wasn't the result of some functional change of the hardware or software other than from dust. So, I just finished opening it and without removing any heatsinks, cleaned out all dust accessible, and there was more than a little. Right now after reassembly, at 56m1s it's at 441.24GH/s(avg). Glad hardly covers it as a description of relief on its recovery.