Re: 1958 Lark 35

[Don]

OK, so it sounds like you have tried a used impeller and a new Sierra impeller. Like I say, members have reported problems with aftermarket impellers, so I would certainly try a brand new OEM impeller. You saw the hot thermostat opened when you pulled it, then watched it close as it closed, so that seems OK.
When you talk about the housing/driveshaft seal, are your referring to the seal in the aluminum impeller housing, or the gearcase upper driveshaft seal which is below the SS impeller plate. In a perfect world, no sealer is required anywhere, but we are dealing with a 50 year old engine so I’m sure none of the metal surfaces are "perfect". In any event, a light coating of the OMC/merc gasket sealer around the outer edges of either seal shouldn’t hurt anything, and is a good idea for the driveshaft seal below the SS impeller plate. It is probably a good idea to use the type M/847 sealer sparingly under the SS impeller plate where it mates to the gearcase housing. But yes, it is best to install the aluminum impeller housing "dry" against the SS impeller plate. The key term here is "sparingly". Too much sealer can surely make a mess. Please don’t remove the upper driveshaft seal (under the SS impeller plate) again if you have already replaced it, regardless of using sealer, you will have to destroy that new seal to replace it. Aftermarket seals should have no effect on the water pump job.
You mention that the relief valve and spring is in place under the thermostat, so that seems OK. No obvious signs of overheating (burnt/discolored paint on block), so that says something may have gone wrong while you were doing the water pump job.
The only other thing we/you have mentioned is the little relief hole in the aluminum impeller housing, too much sealer surely could have plugged that up. You would need to remove the two large screws that fasten the water tube receptacle to the aluminum impeller housing in order to check out the little relief hole. There is a hole drilled through the impeller housing, passing through a hole in the gasket, then through a hole into one of the water tube passages. This hole must be clear to keep the water pump from getting air bound.