that is the actual momentary Vce times the current at that instant. This all averaged out. The equation is simply only for a steady DC situation, in all other cases you have to measure and calculate the power dissipated, or at least simlate it.
The equation you use assumes the case is steadily held at 25°C (with active refrigeration, liquid nitrogen or whatever means necessary), which in practice is very much not achievable.
As for the thermal impedance... Where do you assume that k=0.5 and 1e-5s from? How is the device actually being used?