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I'll second Dan's guess that the coolant temp sensor has crapped out. Mine did the exact same dance until it finally never rose off the full cold peg.
HOWEVER... There are two different coolant temp sensors on a b230f(t) block.
The forward sensor is for the gauge, and the aft for the Lh (fuel injection). You can use a multi-meter to test the resistance across the sensor when it is acting goofy. If you find an infinite resistance, replace the sensor. You can also check the wiring to the gage by connecting the wires on the sensor connector, and the gage should go full hot.
-brendan
'90 745t m46
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