Operational Junction Temperature with LM7800 series regulators

One or more of your assumptions is not correct.

You should have \$\theta_{ja} = \theta_{jc} + \theta_{ca}\$, giving \$\theta_{ca}\$ of 30.76 C/W for IC1 and 21.76 C/W for IC2.

With those values, IC1 should have a case temperature of

23 C + (1.2 W) (30.76 C/W) = 59.9 C,

which is pretty close to what you measured; but IC2 should have

23 C + (0.7 W) (38.23 C/W) = 38.23 C,

which is way off the measurement.

A likely cause are if the datasheet's \$\theta_{ja}\$ value makes some assumption about board layout that is not met in your application. If your board doesn't provide sufficient copper area attached to the chip to spread heat away, \$\theta_{ja}\$ will increase substantially. It's also possible that the datasheet value assumes some forced air cooling over the chip.

That 65 C/W is for a SOCKET without no pcb heatsinking copper. If soldered, with appropriate copper layout, it goes down to 45°C/W, or less, Junction to Ambient.

As for your heatsinks, they are ~20°C/W, but you forgot to add the Junction to Case rating of 2°C/W. So 25 Ambient + 20 Heatsink + 2 Junction to Case = 47°C/W * 1.2W = 56.4°C Junction Temperature.

Key points, Look at notes 8 - 11 on page 7 of the pdf, and consider the board layout (you have tons of empty board spacing no need to have everything so close together).

Page 19 also has good information:

HEAT SINK/THERMAL CONSIDERATIONS
In many cases, no heat sink is required to keep the LM2575 junction temperature within the allowed operating range. For each application, to determine whether or not a heat sink will be required, the following must be identified:
1. Maximum ambient temperature (in the application).
2. Maximum regulator power dissipation (in application).
3. Maximum allowed junction temperature (150°C for the LM1575 or 125°C for the LM2575). For a safe, conservative design, a temperature approximately 15°C cooler than the maximum temperature should be selected.
4. LM2575 package thermal resistances θJA and θJC.

But then you realize, The LM2575 is characterized for operation over the virtual junction temperature range of -40°C to 125°C. At 1.2W (I'm rounding up a bit) and worst case 65°C/W Junction to Ambient, that's still only 78°C Junction Temperature. Almost 50°C below it's maximum operating temperature. Worst case, socket, no proper pcb copper sizing, no heatsink, and you're still good to go. ** Rearrange the traces, and throw on your heatsink, and you're golden. You might need to move the L1/L2 inductors or the heatsink won't attach right. Ideally, you would have the Ground Pin 3 connected directly to the large ground plane.**

Just bare in mind, I hope you have selected the right layout for the 2575 you are getting, as it has multiple versions.

Finally, TI has the Switchers made Simple software here: http://www.ti.com/ww/en/simple_switcher_dc_dc_converters/index.html?DCMP=simple_switcher&HQS=switcher that can help (Though the LM2575 is not included). Also, this article http://store.curiousinventor.com/blog/pcb-as-a-heat-sink-calculating-trace-width-for-given-current can help give you some ideas.