03 Camry engine runs cold - problem persits after thermostat (3 times) and waterpump replacement as well

When coolant is depleting from the radiator, there must be a minor leak somewhere. A pressure test should indicate where the leak is coming from. Visually, look out for signs of oxidation, especially around hose joints.

As to the heating problem, it could be due to partially clogged coolant passages. Have you tried to back flush the heater core?

Actually 5 minutes is the minimum time required for the coolant to get up to operating temperature when starting from cold. If heater runs well after 5 mins and do not have any other issues, I don't think there is anything you can do about it, except maybe to install a heater plug for winter use.

Back flush means to disconnect the heater hoses and using a low pressure hose to reverse the flow to flush out whatever that may be clogging that heater core. The technician should understand if you tell him to back fluch the heater core.

If the heater core is partially clogged, the heating efficient would be affected.

Which sensor are they talking about?

After reviewing your question, I realised I had missed out on one point.

You mentioned the temperature gauge dropping when the heater is turned on and that means the heating efficiency is reduced. This occurs only when operating temperature is not achieved.

After engine has reached running temperature, does the problem occurs?

When thermostat was replaced, were they OEM and of the correct type and specifications?

The symptoms indicates an overcooling condition when the heater is turned on and this should not be the heater core problem.

Is your vehicle with automatic climate control or manual A/C control?

As the heating efficiency is normalised after the operating temperature is achieved, the system seems to be working correctly.

When the heater is not used, the coolant in heater core is not circulating due to the heater valve being closed. The volume of coolant that needs to be heated up is lower and this would shorten the heating up time. When heater is used, the additional coolant from the heater core has to be heated up as well and that is the reason you are noticing the drop in engine temperature when heater is turned on.

The system seems to be working correctly and unless the heating efficiency is below expectations at normal engine operating temperature, I don't think any repairs is going to help.

The only thing you can do to get the heat working under extreme cold weathers is to run the engine for a few minutes before turning the heater on.