Well, she's all back together & I think I am done battling the cooling system. A new thermostat housing, gasket, O-ring & proper gasket sealing have it working nicely. I know I did a better job this time, because 99% of the air bled out in the first 15 seconds after starting the car! It made a nasty shrieking noise as the pump pushed out all the air through the bleed screw, and then it quieted down. If you can avoid clogging that groove in the thermostat housing, it will let all the trapped air pass right through, without having to wait for the motor to heat up & open the thermostat. I bled the hell out of it anyway, even after it warmed up, but only a number tiny bubbles made it out. The M42 is actually very easy to bleed, as long as you don't clog the bleed groove!
Upon removing the housing, I noticed a few things. For one, the little bleed bypass groove was caked with the gasket sealer. I did my best to brush it on very lightly around there, but it still managed to gunk up. It doesn't help that the rubber O-ring on the thermostat squishes into this groove and probably closes it off 75%. That makes this a prime catch-point for RTV and other sealants.
The main reason I had a leak was because the gasket managed to shift a little and split open. It was probably due to a loss of clamping force from the busted bolt tab, and me cutting it over the bleed groove to try to reduce clogging. For some reason, the gasket sealer was totally gone on one side of the gasket! It wasn't on the head either!

Here is the crack, from the inside. It is bigger than I thought. It grew a little on the outside, and was weeping coolant slowly, even after the JB weld.

Speaking of JB weld...it did its job well. If you clean your work area thoroughly with some sort of solvent and give it 24 hours to cure (on room-temp engine parts, NOT hot expanded ones), it seems to be pretty bomb-proof. The instructions recommend drilling 1.5mm holes at the end of cracks to stop them from growing. That's good advice, if you have the part off the car so drilling chips don't go in the motor! I also recommend hitting the work area with a steel or brass bristle brush to get any hard crap off, and roughen it up for the JBW.

You can see how the O-ring squishes into the bleed groove. It fills it up most of the way, and will clog if you have stray gasket sealer.

So, here was the new housing and gasket. This time, I used a spray version of the non-curing sealer since I knew I would get it on too heavy with the liquid/brush version. I also left the gasket intact over the bleed groove since removing that seemed to cause more harm than good.

Finally, here's the stuff I have used. The can on the left was used on the old gasket, and mysteriously disappeared from one side. It is good stuff, and none of my oil-related gaskets are leaking. It just didn't seem to do the trick on my thermostat housing.
The stuff on the right is what I sprayed on to the new gasket. I sprayed both sides with 3 light coats & let it dry for 3-4 minutes. Then I put it onto the housing, and then I put that onto the motor. I carefully installed the housing this time. I put all 4 bolts in, and hand-tightened each from opposing-corners like you would with lug-nuts. Then I gave each one a 1/4 turn, in the same fashion, until they were all fully torqued.

So, with the exception of a cracked vacuum hose (it is brand new, but somehow a junk Chinese brand is now an "OE" supplier...CRP Industries, beware) and a nasty rattling noise at 3000RPM, I am good. I think the rattle is the stripped bolt that holds the top of the driver's side timing chain guide to the head. That'll be next weekend's project I guess. If it isn't that, I have NO idea, because I checked just about everything else outside the motor! The noise has been present since the day I rebuilt it a few weeks ago.