Did you by chance draw the diagram wrong?? Looking at the engine pic it looks like the upper ports of the thermostat have a "T" that gets routed to the side. Are you sure the supply lines that join the ports where the water-pump would be are not tied to this? And the lower ports of the thermostat housing go to the exhaust logs? if thats the case then it would work just fine. Water going to the top of the thermostat housing would be the same as the bypass on a conventional water pump.....the "T" and the side exit would be you bleed off valves i think. So as the block heats up the thermostat opens and lets out hot water...that would be mixing in a little with cold water and going into the exhaust.
The transom water dumps may or may not be for water psi relief.......may be that the exhaust works better a little dryer.....

Here is a diagram that shows how the thermostat kit you have works. Hope this helps you out.

Any questions, please give us a call.

Thanks Guys, the diagram from CP is great, that lends a lot of credibility to what's on the boat.

Wally, yeah, the diagram and circuiting are correct, even though, from looking at the boat it doesn't immediately look like it. I think the best I'm going to do is reroute the hoses to get things looking better.

I would like to change the three way valve that allows the engines to be run on a hose. There are some 1 1/4" inline fittings with an inlet tee available. But if this is placed inline upstream of the sea water pump, what keeps the water from draining out through the transom mounted water inlet? The pic shows the water pickups as well as the cooling water pee holes in the transom just outboard of the swim platform.

John