Jamie -
Some comments you will get here are from people who have "fresh" water cooling - systems that use a heat exchanger. Your motor is direct sea water cooling - there is no heat exchanger and yours works different.
In your case the thermostat controls whether the sea water flow goes through the motor thence overboard, directly overboard, or some of both. If there is no thermostat then temperature control is absent and your motor never gets up to its design operating temperature. Installing a thermostat will permit the motor to run at a higher temperature however the thermostat opening temperature needs to be relatively low otherwise the sea water salts will 'drop out' and accumulate (in the form of hard scale) in the motor cooling passages.
In short we need a thermostat because we want higher operating temperature and that promotes more efficient motor operation. But not too high because we don't want sea water deposits which will restrict flow due to the accumulation of salt water scaling.
Look it another way - Yanmar engineers would not have spent millions on designing a thermostatically controlled sea water cooled system if they thought you could get by without one.
Charles
Correct me if I'm wrong (and I could be), but I don't think the thermostat on a 1GM/1GM10 works quite that way.
When the engine is cold, the raw cooling water flows straight from the pump and directly into the exhaust elbow, bypassing the engine block altogether. As the engine heats up, the thermostat opens, blocks the straight path to the exhaust elbow, and then shunts the cooling water through the block and out the exhaust elbow through that path.
I believe that what would happen with no thermostat is that, without the diverter function of the thermostat present, most if not all of the cooling water would tend to dump straight into the exhaust, i.e., the "cold" position, and little would find its way through the block. This would actually have the effect of *decreasing* the cooling flow through the block, not increasing it.
Again, correct me if I've got that wrong, but I believe that's how it works in the case of the 1GM/10.
Either way, you should replace that thermostat!