Lionel;
First ; the two wires leading to the expansion tank only check for
absence of coolant not temperature. The sender that affects your temp
gauge has ONE wire and is located on the thermostat housing. It is next
to the sensor with TWO wires which sends information to the computer,
they work independent of each other. Disconnecting the single wire will
only make the gauge read "cold". If you disconnect it and short it to
ground you will "peg" the needle in the hot zone and cause the LED to
flash. It may take a few seconds to react.
To test your fan:
Turn on van, and start your air conditioner. The fan should immediately
come on low. Check the fuses if not. The fan should keep the needle
pretty close to middle if your system is working properly. 
I would start with a new thermostat and go from there.

Good Luck
Ken Lewis
kdlewis@juno.com
86 VW crewcab 
85 VW Vanagon GL
60 356 coupe