Sounds like you got your issue resolved by gearing up...but perhaps you should take a look at your timing as well. Medusa recommends 8-15 degrees on their website for best efficiency.
In the Medusa section last week one person was having overheat problems running 036-060-2200 in a 1/8 buggy with low timing. Problem was resolved by changing timing to "Normal 10." Maybe something you could consider experimenting with.
last update on my motor....after 5 run it diedfor me medusa are crapthe magnet come appart the shaft ...it was 138f,esc118(v1) and lipo 96f
i will ppst pics later today
I've seen more Nue Motors (A few of my Aveox did the same thing, but they are old) have this problem then Medusa. I don't own a Medusa so I'm not brown nosing at all. Now, Medusa seems to have the best warranty advertised so try that out before claiming they are crap. Keep in mind your motor reached 160F and the temps iside might've been higher causing the rotor assembly to come unglued from the shaft as heat plus torque will cause this.