Mystery Solved! Thanks Mike. Makes total sense now. The kitchen strainer one is really a nice one to put in there. Sad our choices for new ones are so limited. I added 5 new pics to the archive to show how it works.
The housing is the exact height needed to seal off the bottom hole area from the radiator inlet. That's how it works and probably very well. When cold, the water bypasses through the bottom area where the inside surface of the top thermostat housing is machined to allow water to flow around it. The top of the thermostat housing is sealed off from the bottom part by the height of the thermostat. No gasket is needed because it is not critical to seal off ALL leakage, just that it is tight enough to flow through the bypass.
This is using the Casting No Housings Tim mentioned earlier. What a nice design afterall! Water is being circulated via the waterpump and as it gets hotter since the radiator is not involved yet, the Tstat opens. Nice.
The last 6 pics of that section here:
http://devestechnet.com/Home/MorePix#261Thermostatpics
