So after further debug, I ran the engine at high load while tied up to the dock. I shot the thermostat housing with an IR thermometer and it read between 180F and 185F depending on whether the thermostat was opening or closing. The gauge is reading about 200F. My belief is it was the gauge. I had a mechanic come take a look at it yesterday to get a second opinion. He also brought an IR temp gun down and performed the same check on the thermostat housing. He got roughly the same readings (within about 3 degrees of mine) which is within the accuracy level of the temp guns. We ran the engine for over an hour and he agreed that the gauge was running hot by about 15 to 20 degrees, but the engine was operating as it should.
His comment - "Your engine is running perfectly, either the gauge or the sender is wrong"
I asked about the oil cooler plumbed into the fresh water circuit and he wasn't concerned about it.
The mechanic had a spare USA style gauge, so I alligator clipped it to power, ground, and the sending unit output and it read 180F to slightly over 180F which matched the readings on the IR gun and are within tolerance on the thermostat. So the gauge I have on the boat is reading hotter than it should. Not absolutely critical to fix immediately since we know it's running hot, but I ordered a new gauge and sending unit. My parents are bringing it down when they visit next week and I'll install it when it arrives.
I learned a ton about the cooling system and also feel good about getting to the same diagnosis as the mechanic. I wanted to get a second opinion since this could have been expensive had we actually been overheating. Appreciate everyone's help on this one as the responses were extremely helpful. Now off to the islands to explore some more.
