Yes the port should be screwed all the way in. I made sure that the inside of the oly housing the 0-ring makes contact with had a very thin layer of grease as well. The o-ring did not feel like it was binding when I screwed the port on, and I had no leaks.
This is the correct approach. Remember that it is the o-ring which forms the seal, not the grease. Smearing grease on the threads is a waste of time, since they play no part in making a seal. It's possible that it might make dismantling the port a little easier, but it won't affect the watertightness.
For comparison, I have an Ikelite housing where the back is pulled directly onto the o-ring when it is closed. There is no chance that the o-ring will move against the mating surface so I never use grease on it. Just keep it clean and there will be no problems. I have never had a leak, ever.
On the other hand, with a screw-in port, the o-ring must slide against the mating surface until the seal is complete. Because of the chance that the o-ring will bunch and distort if it sticks on the surface, it is necessary to grease one or both surfaces so it will slide easily until it has compressed enough to make the seal.
It usually is not necessary to grease the o-ring and both surfaces and it is a good idea to use the absolute minimum amount of grease since it can trap dust and hairs which can cause leaks. I just put a very small amount of grease on the o-ring, making sure all of it has some grease, since just one dry spot can cause the problem.
A good technique is to put a good smearing of grease on the o-ring, then wipe it of with your fingers several times, cleaning your fingers with a lint free cloth between each wiping. The result should be a very thin, even coat of grease, which is perfect.
Peter