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No, the oil does not break down over the years of service. These units are made and sealed from the factory. The purpose is to make a unit that does not require repairs and will run for years. It appears that the TSTAT is not sending proper amperage through. My suggestion is to replace the unit as it costs more to repair then to replace.
Sorry for the bad news, but these units are just not meant for service, hence the price.
I don't know how to make your heater work again, but I do know (from long experience with Lakewood 707s) that the setting knobs often fail to function properly even if the heating element still works. My solution is to plug the heater into an adapter with an on/off switch on it and use that to control the power. I leave the setting knobs on the heater itself in the position where I usually use them (max heat). These are excellent heaters except for the knob problem.
Sounds like heat element is defective drawing too much current. Make sure you are not using an extension cord on this heater, it has to be plugged directly into wall socket. Post model number on here so we know what unit we are dealing with.