o-ringing t-stat housing

I'm going to take my thermostat housing to work and o-ring it to make a better seal. how much of an o-ring needs to protrude for proper sealing?
like 1/4 of the cross sectional diameter?

it's the chrome housing, and when i put it on, i sanded the bottom face with 120-grit to make a good seal surface, and it sealed for a good while, but now it has gottem moist around the seam. it looks like the gasket is saturated and seeping, but i'm just going to machine it for an o-ring and forget it for good.