Driving around the temp gauge will hover around the red light. In traffic it can go up as high as 3/4 and the fan will come on. That sounds about right.
Did you crack open the 13MM headed screw at the top of the radiator? It looks like a simple screw, but its the bleeder. After I do cooling system work, I like to drive my vanagon around, find a hill and park facing up and then loosen that bolt. I usually overfill the reservoir behind the license plate so there is a good supply of coolant for the first few trips around town. If everything is working right, the air will work its way out.
Another thought as to why the gauge is reading differently. Perhaps the action of changing the t-stat and house caused the connections to the temp gauge sender to make better contact. Causing the gauge to give a more accurate reading.