First off welcome to CherokeeForums.
Seccond, what motor, 4.0L inline 6, or 4.7L V8?
As for the thermostat housing, I'd start with a new gasket and thermostat housing. They're relatively inexpensive, especially when compared to the cost of cooking a motor.
Next, how does the fan clutch feel? If you grab a fan blade (motor off of course) does it spin freely or does it offer some resistance?
07 JKU Sahara (with tribute to XJ badges
3.5" lift, 35" Wrangler Duratac, Spidertrax spacers, Pro-Comp rims, disconnects, TnT Sliders, TnT front bumper, no rear, CB, TnT tramp stamp w/ antenna, LED interior, Delta headlamps, D2 Dually pillar mounted, 50" Epistar dual bar, 4.88 G2 Gears, Eaton eLocker front, Grizzly locker rear, Artec front Dana 30 truss, full Body Armor skid plating underneath, RCV axle shafts, Synergy 1 ton ball joints, Rubicon Express Drag link & tie rod, etc...
Sold: 01' XJ, 96' XJ, 89' XJ, 97' ZJ, 92' YJ, 97' XJ, 02' WJ, 90' XJ, 95' XJ
Current: 07' JKU Sahara
, 96' ZJ