Lance,

Those temps are too hot.

Based on the work you did to the car, there are only two (maybe 3) possibilities: 1) air bubbles trapped in the system or 2) a bad thermostat. Also, did you make sure that the arrow on the new thermostat was pointing up?

I am assuming that your temp readings were around 90 C before the work you did. (please confirm).

As per the FSM: run the system at intermittent operation (with the heater on defrost the whole time) from a cold start up to ~60 C with the radiator cap off. Then put the cap on. It is a self burping system and should require no special manipulation to get air bubbles out.

The orange bits are probably rust, and it would suggest a full coolant flush and descale-ing.

The extra o-ring (the smaller one) that came with the behr t-stat was for use in a different car.

I know it seems crazy that a new thermostat would be defective, but it is alarmingly common. I recently went through the entire cooling system on my 84 300TD trying to track down the source of my 100 C operating temp and it turned out to be the new t-stat (ironically the one that was in the car when I bought it was the same way). The full story is in this thread: Troubleshoot a 617.952 cooling system (84 300TD turbo)


One more thing, what is the pressure rating on the new expansion tank cap you installed? It should be printed on the cap (e.g. 120).