I was going to say a flaky cluster (I think it’s called an air core motor under the needle) but you said it tested ok. Somewhere in the manual (link below for most years up to 1998) there’s a procedure for diagnosing an inaccurate temp gauge. I want to say you ground the gauge sensor wire but it’s been so long that I’m drawing a blank.
If your ECT sensor is reporting 194 then that sensor looks to be functioning correctly.
Over the years I have collected a bunch of GM service literature. Links to PDF Scans of service and STG manuals and a links to the Parts manuals. You'll need the FREE Adobe Acrobat reader to open these files. Get it directly from Adobe here {http://get.adobe.com/reader/} If you're not...
www.gmt400.com
Edit: found it, see image below. They use a specific tool for it, but the end result is either the cluster or the gauge sending unit. Perhaps you got a bad one, but my money would be on the cluster. You can swap another one in - the odometer can be moved over to the replacement cluster.