temp. gauge malfunction

1987 560Sl 125,000 miles. Just replaced the trans. with a factory re-built and didn't realize how bad the old one was until the new one was installed, as far as smoothness of shifting was concerned. With that problem solved, the temp. gauge began to show that the car was running hot. replaced the thermostat and the sender but the problem was not solved. I checked the temp while running with a laser gun and temp was fine even though the gauge was pegged. I grounded the gauge out at the sensor and it pegged, so I think the unit is grounding out somewhere else on the car. No other gauge is affected. the temp. warms up normally, and jumps quickly to overheat when rpms are applied. When the ignition is turned off, and then turned back to the "on" position without starting the car, the temp. reads normal, around 80C. When the car is started, the needle pegs again. The gauge never reads hot when the car is off, only while it is running. Could this have something to do with the ground removed during the trans. work? Another theory is that somethng is grounding out in the ignition switch, because we have to jiggle the key sometimes while the car is running to get the air conditioning compressor to kick on. Switching on the A/C buttons also cause the temp. gauge to jump a bit. Could either of these theories be correct? If it's the electrical portion of the switch, how do I get the instrument cluster out to get to it? Thanks (I have a feeling this may be harder to track down than the trans problem)

[Benzmac]

It very well could be the ground to the chasis from the tranny. HAVE THAT CHECKED.

I would not think that it is the ignition switch...I have never seen it cause this type of problem.

Thanks Donnie for your advice on the grounding strap from the trans. to the chasis. I crawled under the car and the trans. bolt that the ground was attached to was inserted, but the mechanic never tightened it. I ran it in about 1/4 inch to tighten and the temp. gauge is now operating normally. I checked all the other bolts on the trans. and the mechanic had tightened those, but i guess he forgot the ground. anywy, he'll hear about it Mon. when i'm supposed to take it back to have the gauge looked at. Thanks again and I guess I'm lucky because this will probably be the cheapest fix that I'll ever have on this car!!!