[Barnsnake]

Dwight,
Engine power is made by the amount that the gasses in the cylinder INCREASE in temperature during the power stroke. Ideally, the intake manifold will be relatively cool to keep the intake charge cooler, and therefore more dense. The majority of the temperature increase in the closed cylinder is due to the combustion process, not from the heating by the interior surfaces. While the surface temperatures may pre-heat the fuel air mixture slightly during the compression stroke, the compressive heating is much more significant (and consumes power in the process). If surface temperatures are too high, it can result in an increase in effective compression ratio and may lead to pre-ignition and/or detonation. If the surfaces are too cold they will reduce the effective compression ratio and/or condense the vaporized fuel onto the surfaces (non-atomized gasoline doesn't burn easily or energetically).

Cooling:
Once the thermostat initially opens, it generally closes fairly quickly and goes into an open-closed-open-closed cycle keeping the water exit temperatures fairly constant at the thermostat temperature. In some cases the thermostat may stay partially open and vary its opening to maintain the temperature. (Some thermostats have a wider temp range between opening and fully closing.) If the engine is putting more heat into the coolant than the radiator system can remove, then the thermostat remains wide open continuously and is no longer in control of the temperature. At that point the temperature may continue to climb, or may reach an equilibrium above the thermostat temperature. The end result will vary with ambient temperature and air volume through the radiator.

One thing to keep in mind. The very high temperatures that are commonly used in modern production vehicles are not necessarily for making optimal power. They are to reduce emissions and make the heater work better.
Engines are designed with clearances set for a specific level of thermal expansion with the materials used. The temperature that makes the best efficiency in engine A, may not be optimal for engine B.
It is certain that too cold is not good and too hot is not good. The exact point of "happiness" between the two will vary.