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Sounds like your fans may have stopped working. The same thing happened to me when I had a Honda Accord. If I drove the car and was sitting at a stop light, the car would start to overheat, so I had to turn the heater on full blast in order to keep it in the green. It's probably not your thermostat since your car cooled back down while taking the freeway. If you car was still overheating while you were on the freeway, then it would have for sure been your thermostat.
Here's the kicker though, your mechanic could be telling the truth. If your car overheats and you keep driving it that way, there's a pretty good chance you can blow your headgasket. I would check the the oil dipstick and make sure there's no coolant mixed in there. If there is, it'll look runny and kind of look like chocolate milk and is a sure sign of a blown headgasket. Also, if you have white smoke coming out of your tailpipe, that's also another sure sign of a blown headgasket. I would try doing a compression test. If you have two consecutive cylinders with low compression, you can have a blown headgasket. A leakdown test would also help you out in determining if you have a blown headgasket. But yea, don't pay $1000 to get that fixed. Headgaskets only cost like $50, and I'm sure you can find someone to do it for a lot less than that. I will agree with your mechanic about getting the water pump changed though. I would also switch out the timing belt.
Good Luck!
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