The seal flange goes toward the thermostat housing (facing outward/away from the block). The flat side seats against the thermostat itself. Think of it as the flange creating a lip that the housing presses down onto to make the seal.
Also regarding your earlier question about water flow direction — on the E50TLCUD the water flows up from the impeller through the powerhead, past the cylinders, and OUT through the thermostat. So the thermostat is on the outlet side. When its closed the water recirculates inside the head to warm up faster, when it opens the hot water exits and gets replaced by cool water from the impeller.
160 psi on both cylinders is actually fine by the way. These 2-cylinder crossflows are spec'd around 150-170 psi and within 10% of eachother is good. The fact that they went UP from your earlier reading of 140-150 probaly just means your amazon tester is inconsistant, or the engine was warmer when you tested this time. I wouldn't worry about it, the thermostat fix was the right call.
