1999 BF130 Honda outboard is surging at full power

MY 130 hp Honda has been surging at high speed. I tested my fuel pressure it is steady at about 40psi. I noticed while hooked up to my garden hose the tell tale is not a very high flow, should it be? I have read other articles on this forum and some say changing the thermostat cured their problem. Is this possible as the high or low temp may give the ECM bad information making it run funny?
Also what is the water flow path on this motor and why does the VSI have water going into it?

I have exactly the same engine and it has been fine for about 2 hours but after that it surges when at or attempting to go to high speeds. I've ordered a new thermostat and gasket. Will update if it works

I changed out the low pressure fuel filter, thermostat, water pump and high pressure fuel filter but none of these fixed my surging problem. I finally took it to the dealer to let them have a go at it. The mechanic said there is a high pressure filter inside the VSI (vapor separator) that could have got plugged. I did loosen it up from the motor to change the high pressure fuel filter and after that I couldn't even get it started and when it did start it barely ran and the fuel pressure had dropped to 20 psi and wouldn't come up so maybe I jarred some junk loose in there and that is what my original problem might be. Will keep everyone posted once I get the motor back with the results.