Thanks for the suggestions. I'll pass along my thinking to the class and see what I'm missing.
Starting with the temperatures on the head, my inclination is to believe that the hottest part of the cylinder would be right at the top where the compression is highest and the burning fuel most intense. Since heat rises, the hottest part should be the top of the cylinder referential to gravity.
The coolest part of the cylinder should be down at the bottom of the cylinder, underneath the cylinder referential to gravity. I believe this is why there's the additional nipple on the return line, to get the coolest water back to the coolest spot on the cylinder. From there it would circulate, do its thing, and eventually recycle back up the "hot" outlet. There would be no need for a nipple on the exit, since you'd want the hottest water at the top of the jacket to be what exits.
Regarding the thermostat: Since these engines are designed to be cooled by boiling water, one must assume the optimum working temperature is 212F, 100C. It'd decrease slightly as altitude increases, but power would also decrease. The utterpower site recommends a thermostat set at 192F. I understand the thinking behind it, as it would allow rapid warmup of the engine, and accurate temperature control after warmup. This should increase efficiency a bit, not that it's my first concern. What is concerning is that without the thermostat, it'd take quite a while indeed to warm up 55 gallons of water to reasonably high operating temperature. This means the engine would be running for an extended period of time at a cooler temperature than it was designed to, each time it's fired up.
The thermosiphon cycle: There would have to be a continuous loop of water, with no downhill portions of the loop. Whether it's pressurized or not shouldn't matter much as long as the entire loop is pressurized to the same PSI. But it shouldn't be necessary, and in fact it's something to be avoided when using a 55 gallon drum setup. Shouldn't be a problem with the 192F thermostat.
The thermostat: It will surely impede flow a bit, acting as a resistor in the system. But I bet there'll still be enough flow to be effective, or George's cooling plates would have been redesigned and built without them after a few folks warped their heads.
I plan on using this engine/genset to power my shop, as the local power company charges me $55 every month base rate, and then commercial rates on top of that. Even though it's on a residential property, their blanket policy is that a second service line is automatically commercial. Dirty rats. Since I don't spend that much time down there what with the new addition to the household and all, I figure I can make my own juice and save a few bucks.
Really it's an excuse to play with awesome toys, is what it comes down to. At least I'm honest with myself.