It's behind the radio and ashtray, plugged into the heater housing. I had already pulled the radio because I was having some shorts in it. Once you have those openings available in the console, reach back to the heater housing (plastic, relatively flat surface) and feel around. You'll find a wire attached to a square plastic plug which plugs into the housing. Just unplug the wire, pull on the plug to pull it out of the housing.
If you want to test - what I did was clip the leads for the volt/ohmeter onto the two prongs coming out of it (leaving it in the housing for this). I set the VO on resistance and watched the needle as I drove around and the heater core heated up. The resistance should have changed, indicating that the sensor was sending information out that the housing was heating up. It never changed. The climate control part of the CD gives the ambient temps and expected resistance off of it, but mine never changed at all so I knew it was bad.
The part only cost $14 at the dealer, so if you want to bypass the test and just replace it, it's not going to cost an arm and a leg.
1987 300SDL 265,000 mi.
1982 300SD 325,000 mi. (and holding)
1956 Packard Clipper 150,000 mi.