If you look at the top half of the t-stat housing, you'll see a tapered flange. This pushes down on the o-ring and mashes it into the top rim of the t-stat. If you want to be a beliver like St. Thomas, put it back together and stick your finger into the neck of the housing. The t-stat should not move around unless it's not the correct part for your application. O-ring is all that should be there as far as I know..
1987 BMW 325