Okay, after changing the gauge inside the cluster, replacing the cracked wire going to the sensor on the engine block with one from the junkyard, and just for good measure, replacing the aftermarket coolant temperature sensor with an original Volvo one from the junkyard, the needle is stable, the code is not being thrown, and my daughter is not frustrated from the check engine light always popping on.

I am thinking maybe the aftermarket sensor was the original problem, along with a bad connection at the sensor plug. When I replaced the plug and hooked it to the aftermarket (brand new) sensor, it worked just fine and the needle on the gauge was steady, but it kept throwing the 1-2-3 code after a few days of operation. I finally decided to try pulling an old original Volvo coolant sensor and throwing it on there to see if that made the difference. A week later, it seems to be fixed. I guess, and this is TOTALLY, a guess, that the aftermarket sensor, while working properly, could be giving off a slightly hi/lo voltage to the computer to set off the 1-2-3 code?

Anyways, it seems to be fine now, so maybe this might help someone else with this problem. Thanks to all who helped me in the past!
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93' 240 Classic Wagon 220K & 92' 740 Wagon Regina/Rex 90K