Boat: 1992 Supra Comp w/ PCM 351 Pro Boss converted to electronic distributor ignition (530 hrs)

My boat is having an overheating issue. When I first take it out, it runs absolutely fine for a couple hours. After a while of driving around, it will start to stutter and hesitate while in forward and then soon after it will just die altogether. When this happened, I lifted up the doghouse engine box and found that the engine as a whole was putting out some serious heat. I touched the part of the engine where the fresh water is pumped into (hose from top of water pump into engine) and it was hot. I can start the boat and run it in neutral just fine and I can actually feel that part of the engine slowly cooling down. After sitting in neutral for a while I can then reengage it into forward and it will work for a while, and then the cycle repeats.

This happened to me last weekend, and I needed to replace the impeller anyways for the season so i went ahead and did that. Yes, I made sure to reinstall the water pump correctly and not upside down. With the new impeller, same problems.

Could this be a faulty thermostat? http://www.skidim.com/prodinfo.asp?number=R026002

At the beginning of the day my temp gauge will sit at the bottom of the gauge (120) and then will sit around 150-180 after the boat is warm and I am driving around. The gauge will stay in this range even when I have this problem and i'm sure it much warmer than that. I'm guessing that this means that either my sending unit or gauge is bad.

Has anybody had issues like this or suggestions? Any input will be greatly appreciated.