I posted this in another forum and I followed all the suggestions as it was figured there was air trapped within the block. Thought I'd try here and see if any other ideas. The noise comes from the front of the engine under the stat, or water pump area. I have jacked the front of the truck up, installed a bleeder valve on the stat housing and verified the water pump is pumping. There was a small amount of air came out of the system but not much. Presently have no stat in it just to make sure any trapped air if any comes out. The noise is identical to water hammer in a steam radiator in a home.
Hoping another set of eyes might have an idea what is going on.

"I just finished rebuilding my 351M into a 408. Everything was replaced new except for the heads and block. Block and heads were boiled clean, then the block was decked and the heads shaved. Everything except for the castings was replaced with new parts (not remans) including the water pump.

The 351 did not have a stat in it when I purchased it and it did not overheat although it ran pretty cold most of the time. There was no water hammer in the engine even if idling for a long time and in the 200*'s

The new rebuilt engine has a water hammer, it sounds like air in the system. It was burped and has been driven about 50 miles and although less hammer (about 50%) it still has the hammer after shutting it down. It does it whether running at normal operating temps 192* or less than. Also noticed the noise is there with the engine running but not as severe.

I have tested the cooling system for leaks; there is none, held 15 #'s. I tested the antifreeze for exhaust gases and it was free of. I did a compression test after running the first 20 minutes and found all to be very close but around 80 (the rings weren't really seated at this point.) I changed the thermostat for the 2nd time with another bypass stat. I am blowing good heat from the heater all the time."

Thanks for your comments in advance.