The heater valve is normally open and vacuum must be applied to close it if ECC determines it wants max or near max cooling from vents.
If you go to full cold on temp knob with mode control in "auto" and then look at heater valve link that comes out of vaccum chamber on heater valve(heater valve in the hose just behind engine on firewall).
Turn temp knob to full hot and then go look at the valve to see if you can determine if the valve is actually opening and closing.
Feel both water hoses going to firewall and see if they are both hot.
If they are both hot at firewall then the heater valve is not the issue.
If the link moves and the hoses are not hot then the heater valve may be obstructed or the heater core is stopped up.
If the hoses are hot and the heater is still not warm then you may have a problem with the temp door, temp door servo or linkage between servo.

From your e-mail description, I'll bet the PO had a leak and bypassed the heater as a quick patch. Hopefully the leak was the valve or one of the hoses which are/were external and not the heater core. Another possibility is that one of the vacuum motors controlling the distribution & mixing failed and the PO used this approach to let the AC work without fighting heat from the core.

If it was one of the motors or the core it is a lot of work to replace them. (Took me about 8 hours to change motors on mine.) I would try to test the core for leaks using about 30 psi air before I hitched coolant to it and leaked it on the interior carpet.

I'll look for a picture and/or diagram in my shop manuals that I can scan and forward to you by e-mail. I have already scanned the manual sections for the motors and it shows one poor picture of the core connections. It is about 2Meg so tell me if you want me to send it.
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'96 965 with 16' wheels at 120K. Had '85 745 Turbo Diesel for 200K.

As DanR suggested the first place I would look is at the heater control valve which is run by vacuum. (The vacuum in turn is applied by the ECC.) It is a metal and/or plactic valve in line with the heater hose at the fire wall just to the driver's side of the engine. I don't remember if vacuum causes it to open or close. Try setting the temperature control at full cool and at full hot to see if the control link on the valve moves.

It may be as simple as a mechanic knocked the vacuum line loose???

Otherwise the Electronic Climate Control may have a problem. What happens if you set the temperature control to full hot at the red mark.

Another possibility is the vacuum "motors" that control the air flow doors inside the climate control unit itself. The fact that you say the AC works OK would seem to rule this out.
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'96 965 with 16' wheels at 120K. Had '85 745 Turbo Diesel for 200K.

I would look into the heater valve located at the fire wall where the two hoses enter the cabin, have some one try moving the heat selector while watching to see if the valve changes settings. It could be a bad valve or a vacuum leak causing the valve to remain closed. Or, maybe the previous owner had a need to drain the coolant and the heater core is empty of coolant, that one is a long shot though.
Hope it is that easy for you.

DanR 94 964 265,000 miles (31,000 on the new engine)
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DanR

The cheapest possible solution is a new thermostat. Your present one may be stuck open.
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John Shatzer, '97 V90 @ 110K