You turn on heat or defrost engine temperature goes down?

This is possible but only really if the engine is already at normal operating temperature, and if it is really THAT cold outside. The fact is, If you turn on the heat or defrost (which is also the heater) Then that outlets another heat emitting source for the engine since it uses the hot coolant to heat the heater coil thus making the air blow hot from the vents. Think of it as a second radiator, just smaller.

Also this could be something that could happen if there is a problem with the thermostat sticking at high open (but usually that means the engine is running as hot as it's supposed to or hotter anyway). If this is happening in temperatures above 55 degrees Fahrenheit, a replacement of the engine thermostat is recommended.