Re: 96 Merc 125 outboard
The poppet gets pushed off it's seat with water pressure and opens a large non-temp controlled passage in the powerhead's cooling system. Since it is supposed to activate at around 2500 rpm's and water pressure is around 6 psig at idle and 12 roughly at full throttle, somewhere between those numbers is the design goal. Biggest problem with them that I could imagine would be that the valve is stuck to the housing and requires more than that pressure to unseat. This could be do to marine environmental contamination. Possibly a good cleaning with a tooth brush and mild soap and water is all that's required.
On the other side of the coin, one could be punctured by crud in the water supply, but that wouldn't necessarily cause your problem..............buttttt it could (thinking through it) if the hole were big enough to let some cooling water (but not enough) through thus reducing the pressure differential and keeping the valve on it's seat.
On the cover gasket, I have been into mine several times and still use the OEM gasket mainly because I don't have a local supplier and when I get involved in a project I want to finish it. I use blue RTV (from autoparts store) and ensure that I get a thin coating on all areas that look to have been disturbed and have had no problems with leaks.
Mark