> I ordered a new o-ring for the metal top tube that crosses from the
thermostat housing to the passenger cylinder head.  Do I need to put some
type of silicone sealant on this?<<

Technically you don't need any sealant, BUT. Due to the vehicle age and
possible pitting around the pump area you should use a very good quality
sealant like Locktite 518 RED sealant, this sealant will always stay
flexible. It's heat proof, coolant proof and gas proof. I have been using
this sealant on water pump (and everywhere) for years. Also, the VW O-ring
quality sucks big time so adding the sealant is just an added protection.
This quality sealant won't attack the rubber O-ring in a long run.

About the cylinder head, check the following link:
http://pages.infinit.net/engine/head_check.htm
Inspect the head carefully for crack, Having a somewhat pitted head on the
outside section (yellow section on my page) is not the end of the world,
but the important place to look at is the inner round section (Green on my
site), this portion seals the cylinder from the head, if you don't want to
loose compression or have coolant in the combustion chamber this section of
the head need to be perfect.

Also check for crack between valves and spark plug.

To be sure that heads are not warped, you need a marble table with a filler
gauge or a very precise metal bar to check the head. Find an engine rebuilt
shop and ask them to check if the heads are perfectly flat. They can also
perform a pressure test to see if the heads are loosing pressure (suction
cup). Note: if you check the heads with a metal bar, make sure that you put
the metal bar in diagonal (X)(flat side of the heads)
I know my stuff about heads, believe me.
http://www.letambourin.com/ben_head.htm

lol with the washing machine...

Regards, Ben
http://www3.sympatico.ca/huotx/engine1.htm