It's fixed:) I took out the new pump and noticed that the wear mark were not in the shape of the pump housing. It was oval shaped. The impeller was at a very slight angle, just enough to suck air. I put in a new impeller and housing. and all is well. Well almost, know the temp sits at 130. I will replace the thermostat this week end. I hope it is just stuck open.
Thanks for your help.