Have you tested the thermostat outside of its housing in a cup/bowl/tin of hot water, to see if it is opening?
This has nothing to do with your problem, but the 261 thermostat came with a hole in the flat "edge" to let a little fluid leak through at all time. Most modern thermostats do not have this hole and people drill a 1/8" hole in the edge (outer ring) of the thermostat.
