First off, 200 degrees is not hot, modern stuff runs at 210-220 normally. Hot is 230.
2nd, The 160 on the thermostat is the point at which the stat opens, past the opening point, the thermostat does nothing else but stay open until the temp drops below the 160, at which point it would start to close.
3rd, Are you sure your gauge is accurate?
4th. I'd be pretty concerned if I had to replace the core plugs on a freshly rebuilt motor. Sounds like they skipped cleaning the motor. What else did they skip? Gene