I have the same crap going on in the same car. I took out the sensor and looked it over to see it was caked over or the like. put it back in and the same symptoms. mine is boiling over however leading me to believe the thermo is stuck closed and it's not the sensor. not really fired up to pull the whole friggen thing apart for a $20 thermo. what a friggen joke putting where it's at.........anybody here find a good write-up on the tear down?
Thanks!

 

Just my 2cents:

My 99 2.8l had the blue sensor so check and see which one you need before you order. If you need the green one NAPA sells it for about $15.

I had the exact same issues your having and it turned out to be the T-stat. Turn up the heat and see if the gauge goes down. You can also try using a vag-com to see if your sensor is reading correctly.

 

I installed the green sensor today and that did the trick. I wish I knew about NAPA sooner. Part cost $40 at the dealer.