Well I never heard of it being done that way, but who am I to say. You are right though, if the boat is moving without the engine running, you have a problem. The way it is supposed to work is to take water from the engine, usually at the intake crossover or back of the intake. The outlet needs to be throttled back with a valve so that at 1500 to 2000 rpm the block pressure reaches 6 lbs. and overcomes the spring inside the Bassett tee valve. On my deal, I have a valve coming off the pump, one from the pump to a bypass, one on each outlet, and one before the headers. I fiddle with all of them until the water comes on correctly and then open the bypass until it reaches the correct temp. The water to the headers needs to be restricted until it just fogs the headers with steam. No raw water should blow from the pipes. If you attempt to use a thermostat, the water pressure will fluctuate as the t-stat cycles.
I will post some pics of my rig when I can.
DJ