nitin100,
We are still working with Microchip to get answer to your problem. While we are waiting, we can offer you to rework your board to fit on a 3.0V regulator to replace the 3.3V onboard, in that way, the MC will be a lot cooler, and it will be able to operate in the temperature range you desired. WC8's MC can work from 2V to 3.6V, with lower the voltage the less the heat.
This particular MC has both CPU core and PHY inside. The CPU core part draws only 30mA, but the PHY part draws 170mA. By reducing the voltage 10%, the heat generated will be probably 20% less. We tested board working fine with 3V power to the MC. In the future, we may also introduce feature to shut off Ethernet with certain external pin, in that way, it will be able to operate in full 85C range.
WC32 MC has its PHY in a separated chip, that MC spec is from -40 to +105C, so that WC32 can work in full 85C range without problem. By default, we do not add heatsink to WC32 MC. For people really need to work up to 85C temperature range, we would recommend to install a heatsink on both MC and PHY chip anyway to enlonger its life.