Sorry that I am late to this party.
The thermostat has nothing to do with this.
I have had a similar problem after the first run of my engine (M25) after the launch of my boat. The problem is that you can get a stubborn air bubble in the raw water circuit. It can be stubborn enough that the vanes in the raw water pump cannot develop enough suction to get the pump primed. What you did in opening the pump, LUBRICATING IT (I use dishwashing liquid soap - I coat each vane, then use the bottle to give the pump a squirt), and then closing the pump back up, solved the problem. Hopefully, you are running the "new" style Oberdorfer pump that has an O-ring, rather than the old type that used a gasket.
Also, be careful if you ream out the old H/X. Some of the holes/pipes DO NOT GO ALL THE WAY THROUGH the H/X. If you push it, you will cause a leak in the H/X, and have to find a boiler repair shop (yeah - good luck with that), or buy a new Heat Exchanger.
Also, the 3" x 13" long H/X is ALWAYS an upgrade to the 2" x 16" L heat exchanger. The 3" has removable end caps, and the 2" does not. I once sold someone a perfectly good 2" x 16" heat exchanger to replace the M12 - a 2" x 12"L spec'd for the M12. The guy returned it, and I gave him his money back, because he stated that it wasn't "supported" which it technically wasn't. It was 4 inches longer, and provided extra cooling capacity compared to the 12". The guy felt that the engine would run too cool, which was incorrect. The engine temperature should be controlled by the thermostat.