If you are sure the temp sensor is ok it's probably a block loaded to the gills with stop leak sludge- and it's all caked up somewhere between the block and a cylinder head..

Seen that before. Ugly.

rjp

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03 540I (GAK!!)
81 280E (W123)
70 LeMans Sport with pissed off Poncho 462"
1989 Silverado Step Side (under the knife- complete restomod)