I like to see a cooling system that can run at thermostat temp, then use a temp that ensures water is burned off on the street.
Ross, based on my experience water starts burning off long before the thermostat opens. You can see it with my clear valve covers; they are milky white on start up from water condensation in the engine, but by the time the temp gauge starts moving they have nearly cleared completely. I've never seen that condensation present when the engine is up to temp, and that's with a 160 degree thermostat. The condensation will burn off regardless of what thermostat is used, unless the engine is only fired for a very short time. Burning off condensation is not a consideration when selecting a thermostat.
Fluid temps are fluid temps and the number on the thermostat means little to me. Like I said above, I like to see a stable temp and enough to burn off water. If the oil gets to 220 or so, barring a significant vacuum on it that may allow lower, all is good. If it doesn't not a panic, but not great over time
I don't see any water on my FEs, ever, and can be pretty humid here at times, and I'd see it on a PCV that I run on all of mine. How significant and repeated are you seeing it? Maybe the vapor isn't really leaving and that's why you see it. I guess the last question is does it run that cool or is that the number on the stat and you are getting warmer, if so, hard to say water temp doesn't matter. Very few of us, other than in trucks, have a cooling system that can shed to run 160 under load
The only time I water on diesels is winter, short trips, where it barely reaches operating temp and it has a more extreme cooling system.
That being said, small changes in temps do make significant dimensional changes, even cold parts and micrometers will look very different. I really see no reason to try to keep it at 160, and if I did, I might even be inclined to build it a little looser if it ran hard at that temp, like a boat