The best thing to do is to take the headset apart, here goes:-
Remove the wheel from the fork and place to one side, removing the handlebars from the stem makes the job easier too.
Now remove the top cap from the stem with a 5mm allen/hex key,
Now remove any washers and the stem, again with the 5mm allen/hex key,
The fork will no drop out and the headset will be left in the frame, if the fork does not fall out remove the top bearing cover and the gold compression ring,
You will then beable to see the cartridge bearings in the cups these should come out by hand, but you may have to prise them out (be very careful) the best way to do this is with a flat head screwdriver wrapped in a cloth.
Now try running the bearings in your hand, if the feel gritty prise up the rubber dust sheild very carefully using a stanley knife blade.
Degrease the bearings using a degreaser which is kind to seals, eg. Finishline, or Weldtite CT3
Now inject into the bearing a quality teflon grease, eg. Finishline or Weldtite TF grease.
Replace the rubber bearing sheild and put a smear of grease all over the outside of the bearings and re-inset into the frame cups.
Re-install the fork, remembering all the spacers the stem and the top cap.
Tighten the top cap until the headset is tight but the steerer still rotates, then back off a 1/4 of a turn.
Re-install the wheel and handlebars and re-check the headset tention after droping the front of the bike on the floor 2 or 3 times from a height of about 1 foot.
Hope this helps, if you get stuck you can e-mail me
dave@sjscycles.com