1990 175 Evinrude Alarm Going Off

OK I am working on this motor for a friend of mine. I changed out the water pump and found that the rubber gromet that goes in the top of the housing was in the wrong place so I put a whole new pump in it. I removed the thermostats and cleaned out the housings. I also installed a new temperature alarm switch in the port side as it had a bad wire. The problem is when you run WOT the engine will go into "limp" mode throttle back and sometimes the alarm will sound, other times it will not sound just go into limp mode. If you turn the key off and immediatly re crank it it is fine and will run WOT for another 5 or 10 min then repeat. If you go any RPM under WOT it does not seem to do it. I used a infrared temp gun and the thermo housings after the alarm sounds and it goes into limp mode are about 120-130 the front of the heads (water jacket) fluctuate between 150 and 180. The tell tale is luke warm guessing 90-100 degrees. There is water misting out of the exhaust holes at the top of the mid section. When I am running it on the hose there is good water flow out of the prop. I am at a loss. Also the VRO setup was disconnected some time ago so that is not in place. Any ideas?