If the Voltage stabiliser is inserted incorrectly the output voltage will not be 10V but will be the supply voltage (12.7 to 13.8V) and eventually could fail. The guage will read higher due to the higher supply voltage.
Does the temp guage rise with just ignition 0n? If yes then you have a wiring fault
Check the wiring to the senders in the plastic thermostat housing in case of an error when you re-fitted the engine
Shown below is a rear view of the gauge panel . Using a Multimeter set to DC Volts, Measure the Voltage across points A and B (should be 10v)
The VW method for testing the Fuel and Temp gauges is by placing dummy loads across the output. The diagnostic tool used is connected to the horizonatal edge connector and simply places a resistor across the outputs - in the case of the Temp gauge it places a 100 ohm resistor across the output and the reading should be plus or minus one needle width from centre witha 10v supply. 100 ohms is the approximate value of the temp sender at normal operating temperature.
I carry out the test with the instrument cluster removed but it can be replicated on post 86 vans by removing the Module 43 (looks like a relay but is in fact an electronic circuit in a relay style housing and detects low coolant)- it is situated in the fuse box. (in earlier vans it is mounted elsewhere)
The module 43 can cause high temp readings if faulty so worth removing it as a preliminary test.
There are a two tests you can perform by inserting male spade connectors into the vacant sockets shown below and, with the use use of a multimeter read the resistance of the temp sender when your temp gauge is reading excessively high.
With engine cold, insert a 100 resistor into the vacant sockets shown and switch the ignition on (gauge reading should be centre or slightly above).
socketv2 by
Angelo Evans, on Flickr
res90 by
Angelo Evans, on Flickr
rear90v4 by
Angelo Evans, on Flickr