Meditation help - Am i observing a thought like I should or entertaining it?

1) The answer to the first question. Focus on the object, and skillfully reject all your own thoughts. Needs months to years of practice though depending one's ability. Will get it eventually.

2) OCD....

“Bhikshu, as regards the source from which proliferation of conception and perception assails a person: if one were to find nothing there to delight in, nothing there to welcome, nothing to cling to—this is the end of

• the latent tendency of lust,
• the latent tendency of aversion,
• the latent tendency of views,
• the latent tendency of doubt,
• the latent tendency of conceit,
• the latent tendency of desire for existence, and
• the latent tendency of ignorance.

This is the ending of the taking up of the rod and the sword, quarrels, disputes, mayhem [strife], slandering and lying —here these evil unwholesome states cease without remainder.”

…

Avuso, dependent on the [eye | ear | nose | tongue | body | mind] and [form | sound | smell | taste | touch | mind-object], [eye | ear | nose | tongue | body | mind]-consciousness arises.

• The meeting of the three is contact.

• With contact as condition, there is feeling.

• What one feels, one perceives.

• What one perceives, one thinks about.

• What one thinks about, one mentally proliferates.

From that as source, proliferation of conception and perception assails a person regarding past, future and present [forms | sounds | smells | tastes | touch | mind-objects] cognizable through the [eye | ear | nose | tongue | body | mind].

Madhu,piṇḍika Sutta

Continuous thinking leads to an avalanche of thoughts about the past, present and future.

proliferation of conception and perception assails a person regarding past, future and present

As you have recognised the thoughts can be pleasant or painful.

vi. On cognizing a mind-object with the mind,

• one investigates the mind-object that the basis of mental joy,
• one investigates the mind-object that is the basis of mental pain,
• one investigates the mind-object that is the basis of equanimity.

Dhātu Vibhaṅga Sutta

Regardless of that they are stimulating and pleasant or depressing you should not get averse or attached to them.

(1) the latent tendency to lust reinforced by being attached to pleasant feelings;

(2) the latent tendency to aversion reinforced by rejecting painful feelings;

(3) the latent tendency to ignorance reinforced by ignoring neutral feelings.

Pahāna Sutta

When you get distracting thoughts, look at what sensations they have produced, i.e., they were pleasant thoughts or unpleasant thoughts. Stay with the sensation equanimously for a while until it subsides and then return to your object of mediation. When the sensations subside there will be lesser through proliferation, hence lesser distractions due to thoughts. Prematurely bringing your attention meditation object, while strong sensations persist, may result in further distracting thoughts.

You should break the chain of thoughts. Repeated thinking can lead to view which is a latent tendency. These can be self centered view.

• the latent tendency of views,

The view can lead to superiority or inferiority complex. E.g. I am good, I am bad, I am better than X, I am worse than Y, etc. This is Mana which is also a fetter and also an unwholesome mental state.

When these thoughts arise you should look at them in a detached way as a passive observer while being equanimous. Observing in such a way these view slowly dissolve. Getting involved with the thoughts by rejecting, ignoring them or getting attached to them reinforces these beliefs. So you subconscious beliefs will not be affected if you are not equanimously observing them.

Doing so the thoughts will also subside quickly with less thoughts proliferation, in which case you can bring back attention to your meditation object.

What you have described is not really "observing". It is "thinking".

Thinking & observing are basically two different & antagonist activities.

While there is a place for thinking, pondering or 'reflection' (yoniso manasikara) in Buddhist meditation, it is not observing (anupassi).

Therefore, if you just let thinking continue instead of addressing it, you certainly might subconsciously believe it.

If the thought arises: "I am a bad person", you should investigate or examine the truth or falseness of this thought; but in terms of emotions & actions rather than 'persons'.

In Buddhism, there are five precepts which are about: (i) killing; (ii) stealing; (iii) unwholesome sex; (iv) dishonesty; & (v) drugs & alcohol. These five are bad or harmful actions. In addition, thoughts & emotions of greed, anger/hatred & selfishness are also considered bad or harmful.

In Buddhism, a meditator does not think: "I am a bad person". Instead, a meditator acknowledges or refects: "This is a harmful emotion" or "This a harmful action". The focus here is upon the emotion or the action rather than the person. The meditator then reflects (thinks about) why the emotion or action is bad or harmful, which, in itself, will change the emotion & action towards a good emotion & good action.