Well its leaking now from thremostat housing with new gasket around new thermostat and I want to get this clarified and the FSM was unclear.

Can anyone verify this is how it should be installed with gasket around the thermostat VS gasket not around the thermostat but on top of it?

I believe I was right having it installed as seen on the 2nd picture but perhaps some permatex will provide the solution here.

Attached Thumbnails

   

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'84 190D 2.2 OM601.911 144K

the second picture is correct.

check the inside of both halves of the housing for nay debris or warping/ bending.

a new gasket should not be leaking like that.