I bought a can of compressed air at Wal-Mart and gave the temp sensor a blast or two and it started working right. Some people have commented that compressed air might damage the delicate sensor, but this didn't happen to me. Personally, imho air would less likley damage than physically touching it with something.

You might have a leaky heater core. The coolant circulates through the core at all times and the damper changes the amount of air that is directed through it to adjust the temp. You could have some steam beginning to leak out even though you don't smell it or have a wet carpet. Try moving the temp all the way to the coldest setting with the AC off and recirculate off - this completely shuts off the air flow through the core. If you get no foggy windows on this setting, it could be a clue. Also, if you leave the core shut off (temp on the coldest setting) for a while - if it's not too cold now where you live - then when you open it up by setting the temp warmer then if you have a leak you are more likely to smell the coolant steam because it will have become more concentrated from the core being closed off.

All modern cars make use of the AC to clear a foggy windshield. If your AC is not cold, then get used to a fogged up window.
The cabin temp sensor is right next to the computer control knob on the dash, the one with the little grill. In order to get it out, you have to remove the radio and the ECC panel. The ECC is a little stubborn but comes straight out. Then reach around to the back side of the sensor and grab it at the front (there are 2 plastic tabs, 6 and 12 o'clock) press in the tabs and carefully remove it from the dash.
Becareful with the small metal probe sticking out the front, it cannot be bent. Clean the little fan with a pipe cleaner or toothpick. Replace the temp sensor, it is seldom bad.

Another trick to clear the windshield: crack the driver's window about 1/4 inch while driving.

Klaus
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The 164 has a new home, all I am left with are a 95 854T and a 98 V70R :)