I would suspect that you have a poor connection at the temp sending unit.  It
is located on the themostat housing.  Pull the connector off of the sensor
and enusure you have a good, clean contact.

My 85 Westy suffered similar symptoms and I found it to be that the contact
in the connector had been pushed back in the plastic housing of the connector
thus causing it not to seat properly when the connector was put on the
sending unit.  A poor signal came across the connection and it caused similar
symptoms.