My 89 was exhibiting a similar problem, although in my case the light just
stayed on and would not shut off. In order to determine if you had a good
level sensor, you can disconnect the wire that runs to it, and then jump
the connector with a small paper clip. If your coolant light goes out,
it's a good indication that the sensor is bad. Remember, you will have to
turn your ignition off, to reset the circuit.

You can also try cleaning the ground which attaches just below the coil.

I've also heard that if your mix of antifreeze is over 50/50, like a 70/30
the glycol will not conduct electricity properly, although my antifreeze
is a 60/40 and I have not experienced that problem.

Finally, in the archives there is a message that states
pull the relay 43 (or 42) from its relay socket. If the blinking problem
stops when the relay is out, the fault causing the blinking must be in the
coolant level circuit. If, however the blinking problem continues even
with the relay out, the problem can't be in the cooolant level sensor,
it's wires, or the relay.  (posted by Mark Drillock)

In my case, the bolts on the back loosened up over time and simply
tightening them up did the trick. Give Ben a cigar! He's a wealth of
information. Great Job Ben and great advise.

good luck,

Troy
89 Vanagon (money monster) Hoping for a nicer pet name in time;)