I haven't come across any upgrades using our particular model of engine (Volvo MD5C) and information on the water flow circuitry is sketchy at best (and I have the workshop manual!).
The thermostat housing is fed by raw water from the pump and then the water appears to take two paths, one feeds the engine block and the other the exhaust manifold. There is a separate feed to the exhaust muffler. Posts I've come across reckon that "smaller" marine diesels don't provide enough heating to warm the water adequately and a number of posts I've found talk about a bypass feeding the exhaust which diverts valuable hot water away from the heating duty.
It was not clear from an external inspection of the thermostat housing whether there was a bypass in place, so I pulled it off to have a look.
In the photo you can see a small hole in the center of the thermostat housing which allows some cold water to flow directly to the exhaust manifold. When the engine is warm and the thermostat open, the path of least resistance for the cooling water is through the engine block and into the port feeding the exhaust.
It was a good idea to pull off the thermostat housing as I found an old impeller blade jammed in there. I guess it had broken off and one of the previous owners hadn't gone looking for it.
Whether there will be enough heat to warm the water remains to be seen. I'll update this post once fully installed.
Update 1 - I've decided to buy a temperature gauge and sender so that I can monitor the engine temperature rather than relying on the standard set up which is an alarm when the engine is overheating!