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Before you tear things apart, have a look at this excerpt from the FAQ - aptly titled "Temperature gauge fluctuates".
http://www.brickboard.com/FAQ/700-900/ElectricalInstruments.htm#TemperatureGaugeFluctuates
I'm inclined to think that it would take a shaky thermostat indeed to cause fluctuations in temperature indication - at least I've never seen it. However, back in my '78 264 days, I had a radiator job done (self-diagnosed) when the problem turned out to be the voltage stabilizer on the back side of a "Rally Dash". Follow up on the electrics first, if it's an odd indication.
Good luck.
Garth
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