160 thermostat will put your ECM into warm up mode, and make it run pig rich.
Look up a robertshaw flowkooler, or any high flow that will fit. Also look for one that fails "open" and not "closed."
If you're turning it into an off-road rig, maybe look into bed mounted radiators with e fans. Keeps them away from damage, much more efficient, gets the mechanical fan off the engine, and keeps slop out of the fins. There's really no disadvantage to them off road. The only reason to keep it in the core support is free cooling at highway speeds.
A colder t-stat is likely to affect your MPG, as well as increasing cylinder wall wear.
Overheating generally means there are problems with the cooling system (dirty or clogged radiator, deposits in the system, weak coolant, etc.).
The way to avoid overheating (in addition to installing the bigger radiator) is to simply maintain your cooling system (replace the coolant every 2-3 years). The temps you mentioned earlier seem within normal to me also.
I run a 195° t-stat in mine and the 4.0L rad. Never once have had any heat issues, even here in the hot So-Cal desert.
The thermostat temp rating is for when it opens, not what temp the engine runs at. If the cooling system isn't working, a colder thermostat isn't going to help. It may delay the overheating slightly, but it will still overheat.
OK, so high temps are not an issue as of right now. I changed the belts and that helped a little, but I still had a climb over 205 that I didn't like. I decided to see if there was any air left in the system. I parked the truck on a slight uphill incline. I let it run with the radiator cap off and a piece of cardboard stuck behind the spring of the throttle cable (to get it to 2500 RPMs). I let it run for a good 20 minutes like that. I didn't need to add much coolant at all, but I did notice the coolant looked a little rusty after the t-stat turned on the third or fourth time (it was not oil). I know the heater core was clogged up bad when I bought the truck. I remember the rusty gunk that came out when I flushed it - I am thinking I should replace that anyhow.
After that, I drove the truck in 4-low up and down some decent size hills for about 30min. I also got it up to speed in 2-high. Never went above 200. So problem solved, at least for today. I am thinking there was some air in there, or some blockage finally broke loose.