1. And heat is still pretty badly compromised by the water, wich is excelent coolant.
So is air, hence the invention of the oven and forge and other enclosed heat chambers for nearly every application that need consistent heat. (pro-tip: We use naked flame for exactly one thing: Light).
2. Again, you are right. But for first - try to invent that without advaced chemistry, underwater. And second - try to invent something you most likely never ever observed for all your life.
First: There are several naturally occuring ores that, if mixed and given some initial heat (for instance from friction), will happily go exothermic underwater (both with and without oxidation i.e. fire)
Second: What? You mean like pretty much half of all inventions?
3. Almoust all of them are stone-age to medieval era advacements. To be space-faring, you need industrial level.
You need a heck of a lot more than industrial level to be space-faring.
The problem here is that all of the people who go 'it's impossible!' assume an aquatic species who live at the deepest bottom of an earth-like sea with earth-like plants and earth-like animals.
It's entirely possible for the hypothetical planet this hypothetical species evolved on to have, for instance, a type of plant that concentrates nodules of pure magnesium inside its leaves to discourage herbivores from eating it, which this aquatic species then learned to cultivate and safely harvest (Hey! Agriculture, a whole field of technology that requires little to no fire at all) and use as their initial source of heat/fire/fuel for metalworking and other applications until their technology advances enough for them to find other sources of fuel that work underwater.
Or, for that matter, it's possible for them to have evolved and originally lived in a rather more shallow part of the sea where the surface is only a fifteen minute swim upwards and they harvest atmosphere (initially in animal skins and later in more advanced vessels) they can't actually breathe for all sorts of applications in much the same way we harvest water we can't breathe either for applications. They may even use actual fire by building ovens and forges on rafts (made of non-combustible materials), filing them with phosphorus (which doesn't burn underwater, but ignites on contact with air) and then raising them into the atmosphere to dry and cook and then sinking them back into the water once they're done, in a sort of invertended version of how humans in some areas used to bury clay vessels filled with food around the mouths of active volcanoes to cook food (which is where the whole 'throwing food (and people) into the mouth of the volcano to appease the volcano god' stereotype comes from).
Or, you know, come to think of it, they could use the hydrothermal vents already mentioned in this thread several times, for their initial heating needs.