Yes, running the heat usually fixes it. Has nothing to do with draining heat off the engine to cool it down. You're most likely not overheating at all - the gauge is lying to you.

The problem improves with "cabin heat" because something on the circuit board expands from the heat, and makes contact again. It's a bad solder joint or two somewhere on that circuit board. Not worth fixing or replacing, you're much better off doing the bypass so you get true reads showing on the gauge.

The "kit" is at
http://www.ipdusa.com/ProductsCat.aspx?CategoryID=1455&NodeID=4668&RootID=629

The instructions are at
http://www.ipdusa.com/pdf/PI-297TempBypassKit.pdf

There are other instructions posted elsewhere, and you likely can find some posted here by searching this message board on "compensator board bypass", but the ipd instructions are quite good.

Here are a few tips:

IPD has you connect up a short jumper wire that has connectors on it, that fit the pins on your instrument cluster. Instead, you can solder a wire jumper to those same pins.

Or you can do as I do: I get a piece of 16 gauge lamp cord/extension cord ("zip cord") and split off on side of it. Gotta be 16-gauge, just buy a foot of it at a hardware store if neeced. Cut the piece to 2-1/2 inches. A butt cut, with no stripped insulation. Jam a thin nail or such up each end of the wire to make a small hollow, about 1/4 to 3/8 inch deep. How press the hollowed ends of the wire onto the correct pins as in the IPD instructions. Needle-nose pliers. That's it - just reassemble. The reassmebled instrument cluster holds the wire in place. My current daily driver has been 1-1/2 years, and about 70,000 miles since I did the bypass by this method. No problems with the gauge.
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Sven: '89 245, IPD sways, electric rad. fan conversion, e-codes, 28+ mpg - auto tranny. 850 mi/week commute. '89 245 #2 (wifemobile). '90 244 (spare, runs).