I would put the heater hose plumbing back to the way it was before you installed the heater and test to see how it runs. The idea is to only change one thing at a time to make it easier to diagnose the problem. If it still overheats, you have narrowed it down to the thermostat area and you can do the cook it on the stove test as Jon suggested. If it doesn't overheat, you know the thermostat is ok and something is wrong with the heater installation.
