The thermostat goes in first, spring down. The O-ring lays on top of the thermostat. Tighten to spec. which is probably around 6 ft/lbs (check on that though). That's not real tight so Don't overtighten them. Once the metal surfaces of the housing and pump snug together the O-ring can't get squashed any more anyway, and further tightening just risks ruining the easily stripped aluminum threads.

I don't know about the O-ring but I would really recommend using an OEM thermostat. The last one I took out was an aftermarket and the metal bridge was actually broken off the plate.