that is the most disturbing aspect of your problem. it doesn't matter a great deal what the temperature gauge is showing, as it is not really accurate. however, provided that the air flap is moving fully to the hot position, you should get hot air out of the vents.

if you do not, it suggests that you don't have full coolant flow through your heater core. that can be one of two things.

1) the core is blocked with old antifreeze and crap so doesn't flow properly

2) you have an air lock

check 1 by flushing it through with a hose pipe at low pressure. if blocked, fill with drain cleaner and back flush several times

if 2, you need to bleed air out from the top hose when the thermostat is open. this may well affect the temperature reading, as the air lock could cover the sensor, but it won't affect the running of the fans as they switch from the radiator. if the air lock is in the head though, the thermostat may not open correctly.

in any case, an air lock is bad news as it will cause hot spots in the head that could give you all sorts of problems