Unfortunately it is dark outside on this side of the world so I can't have a good look at the engine but looking at the thermostat housing I don't think there was any other sealer on there. You could also see on the block how it was bypassing the O ring at the top. I thought it could be sucking in air. Have tried the photo thing but not sure if it will work or not - let me know.

http://s1020.photobucket.com/albums/...t=SAM_3640.jpg

David