air in coolant tank

[helenback56]

2004 d4d yaris 1.4 on 116000 miles

A few weeks back the hot water warning light came on the dash and the coolant tank was well below the min level. since then, the coolant drops and rises randomly but when i open the resevoir to sort it out when its low, i get a huge hiss of air escape. the heater also goes cold regularly when its on the hottest setting.
Over the last few days, the hot water light flashes up regularly and goes oout when the heater kicks back in again (one presumes an airlock in rad), but the hot water warning light wont come on if I keep 60mph or below until the heater blows out warm air again, but there is always lots of air in the coolant tank.
We started to get it investigated but stopped as we have decided to trade the car in - no leaks were found but didnt get as far as a compression test as querying a cracked engine block. The garage did have to put 2L of water in though but its still doing what it always was with the air in the coolant tank. The coolant has now started to discolour from red-orange to purple - any ideas? Oil has been fine and car seems to run fine although I do query if its slightly down on power.
Any suggestions as to the cause?