Is your E-fan coming on when it's near the red? Dash gauges aren't great. My experience with HG and overheating, if that 2000* combustion gas is getting into the water jacket it spikes hot pretty quickly. Also if you "power-brake" it with the rad full up and the cap off there might be bubbles.

My 90"s are a bit different than yours, also I live on a very steep hill I've got to crawl up slow, no airspeed through the Rad, need that E-fan. That said I'm annoyed by the same thing, the needle up by the red. Anytime I check my E-fan thermal switch it tests OK, then I find it uncomfortably hot again with the fan not running.

 

A positive co2 test in the coolant doesn't necessarily mean the block is cracked but the head could be or the head gasket could be leaking. It could even be a warped mating surface. In any of these situations the head should be pulled and an inspection done....if you trust your shop performed the test correctly.

I always use an MLS headgasket and head studs. I've had great luck with Victor and Mahle.

The water pump is simple, does it have any play in the shaft does it turn easily by hand? Remove it and check that the vanes are still intact.

I am very skeptical of most additives but for those with a known good cooling system throw in a bottle of purple ice. The concept is shakey but I've had to eat crow with this product. *This will not help the OPs problem.*

 

You can get a better idea of actual temperature at the head by shooting the head with a temperature gun. Sometimes the gauge inside the head isn't accurate. Also, at least on my 1992, the sending unit to the gauge is at the rear of the head while the sending unit for everything else - including the auxiliary fan - is in the thermostat housing.
A bit of an assist is to always leave the heat on and the temperature to hot. The heater core is a mini-radiator.
You can cheaply buy a test kit and re-confirm the presence of exhaust gas in the coolant system.
What color is the coolant? Have you already change the coolant enough times that the whole system is now the same color as new coolant?
Ensure that your shroud is well fitted and placed, that your fan doesn't spin freely (there should be some resistance), that the bearing on the water pump isn't worn, that the water pump isn't leaking, and that all of your hoses aren't kinked.
If I was having trouble with overheating and had the thermostat out, then I'd replace with a unit that opens at a lower temperature or drill one small hole in the metal circle so that a small amount of fluid is always circulating. That is the same principle as having the heat on.
Coolant is unfiltered yet has additives that wear and generates rust as well. These contaminants can clog ports and possible hoses as well as notoriously the tubes of heater cores. Wix does make filters for coolant.
If our are above freezing - for absolute surety - then you can drain the whole system, remove the thermostat, and run straight water for two or three days to try to clean the system. Drain all of the water and hope that it has removed the rust and other contaminants from the jackets, hoses, and tubing. I have used Purple Ice from Royal Purple it did make a single digit difference in temperature reading at the gauge inside of the vehicle.

 

You have some work & cost ahead of you. Some thoughts to start with:
* Overheating, combustion gas in the radiator and excessive water vapor from the tail pipe are all signs of a bad head gasket, cracked head, warped head or other serious engine problem that must be resolved. Bad heads are more likely on 2000 and 2001 but you will find many, many posts on this and other forums with 4.0’s of all years with head problems. I would focus on this area first.
* I do not consider any head gasket/block sealer that is put into the radiator to be a good or permanent solution and it may result in restricting radiator and heater passages and/or interfere with heat transfer.
* Troubleshooting almost certainly will involve removing the head. The problem might have started with the cooling system such as a partially plugged radiator, worn pump, bad thermostat, etc., but there are other issues now that must be identified and fixed.
* As DFlinstone mentioned checking the aux fan and fan switch is a good idea as a secondary item
* Your question on head gaskets is not clear but if you are asking about a good replacement I prefer high quality replacements from an OE type supplier over inexpensive versions. Mahle is an OE supplier to Chrysler and from my experience makes a very good head gasket set that includes other needed seals.
* The lack of a thermostat housing gasket raises concern that someone lacking skills or attention to details worked on it. Check that the thermostat is correct and properly installed.
* If you pull the head and find that the gasket looks almost new be suspicious that the same person of suspect capability that worked on the thermostat housing tried to fix the problem with a quick head gasket replacement.
* The water pump could be performing inefficiently due to age or improper cooling system maintenance but I am not aware of a good way for the average person to test it. Worry about it later but don’t forget about the potential that it may need to be replaced.

 

Are you adding antifreeze?

Test the sensor (do you have 1 or 2? As gat noted if you have 2 it's the one in the back) for resistance to be sure it's accurate. Pop it out and toss it in a pan of hot water with an accurate thermometer in there.

From CCKen:

 

See this poster's experience:

https://www.cherokeeforum.com/f2/199...solved-213657/

 

To be clear about Purple Ice - use it or don't - but know that it isn't a sealant. It is an additive that is supposed to create more contact with surfaces. It is not something that tries to seal or congeal or "fix" a problem. It is just supposed to ever-so-slightly lower the operating temperature of the coolant. In my experience the change only effects a single digit.

 

No it is not a sealant and should only be used in a well working and maintained system. I noticed in my situation when I would do long pulls at 10 to 15 psi I would have a bump in temperature that would take the stock system a few minutes to dissipate in 90*+ ambient temps. My turbocharger is also water cooled and adds to the thermal load on the cooling system. Only thing I changed was adding the product as instructed and I no long have spikes in coolant temp. I made sure to mention that this will not help the OPs situation but may be useful to him in the future or someone else. Finally coolant sealant additives should be avoided and the correct repair should be performed.