Randy--

That red light does not indicate how hot the coolant is.  It is a level
indicator telling you that you've got a bubble or too low of coolant. 
It is suppose to come on at start up for just a few seconds to show you
that the LED works then go off.

The sensor is located in the top of the reservoir tank in the back of
the vanagon.  The reservoir tank is the one towards the driver's side,
not the one at the license plate (that's the expansion tank).  If the
coolant level seems okay, and bleeding for air bubbles doesn't solve the
problem, then it could be one of two things.  1) bad sensor or 2) weak
coolant concentration.  The sensor is basically two probes that stick in
the coolant.  As long as the juice flows from one probe to the other,
the sensor is happy.  It uses the coolant as a conductor.  Pure water is
a poor conductor (as is air) so if there isn't enough antifreeze
concentration or if there isn't enough coolant, the electrical flow from
one probe to the other is interrupted causing the light to go off.

Hope this helps,
Tonya
87 Vanagon GL Wolfs
74 S. Beetle