VW replaced water pump (covered)but now says it still runs hot , why they would not have checked the thermostat(not covered $255) in the 1st place beats me, has anyone replaced the thermostat and gasket and where is it located and if this is something I can do myself Thanks timmyp....

It probably was the water pump initially (very common problem), the thermostat may have been damaged from the overheating. It's located where the lower hose enters the engine.