Sucess!!!
This morning I rode my bike to office max and purchased a can of dust off to get the thermostat bolts really cold. I sprayed the bolt heads for about 45 seconds. Thinking that the bolts were now somewhat contracted I applied PB blaster and let it soak in.
I hammered the top of the bolt a few times with my #40 torx bit and extension.
The bolts broke free after 4 days of trying.
They didn't look extrememly corroded to my surprise and once the initial break they unscrewed right off. Weird.

I planned on making my own gasket for the thermostat housing so I purchased some gasket material and some silicone from the auto parts store but after inspection I'm not so sure. Looks like the previous owner just put silicone on both sides of the metal housing. Does this sound right? The thermostat has it's own rubber o-ring and I'm not sure if silicone is even needed.

Also, my new thermostat is rated for 87 deg. C but the existing one (it say Volvo on the top..original?) say 90 deg. C. I'm sure this isn't a big deal.
The new one also has it's own o-ring which is thinner than the original but I purchased a thicker one. Which one to use? I'm guessing the thicker one.

Thanks to everyone's help in the seemingly minor incident (it was major for me).
Especially Spook for the expansion/contraction theory and Jbowers for talking me into buying a quality Torx bit instead of my cheap one. It definitly helped.

bomhauer