You've still not said if the lower hose has a support spring in it. If it does not, it is probably collapsing. Also the thing about the thermostat is not right. If the thermostat is not tight in the housing, unregulated water is coming around it.
The tstat fits the intake housing nice and tight, but it seems the t-stat outlet housing also has a identical recess in it so its double the size it needs to be.
I just realized that I forgot to mention Im running Magnum heads on my LA. Not sure if that is a issue to this or not. Which may explain the t-stat bouncing around in the housing also. I had to find a outlet that fit and wasnt tall like the truck outlet.