I had a similar problem with an irratic temp gauge on my 92 Explorer bought 4 months ago from a private party.
The diagnosis-
The needle on the temp gauge, with engine at "normal" op temp, never got much above the "C". The upper and lower radiator hoses felt warm but not hot. A laser non-contact temp probe showed a max temp of 160 degrees on the hoses and 175 at the thermostat water outlet tube. This a problem as the thermostat is supposed to open at 195 and with the engine never reaching normal operating temp, it would affect my mileage and possibly kill my catylitic converter.
The Fix-
There was a TSB(1) on a replacement temperature sensor so I got one along with a standard and heavy duty Stant(2) thermostat and gasket. First I flushed and cleaned the system several times (filled with rust). I installed a Prestone in-line MPT "T" fitting in the heater line to back flush the cooling system with a garden hose to make sure I got out all the rust...no improvement. Then I replaced the temp sensor...no improvement. Then I removed the thermostat and examined it. It too was covered with rust which partially obsructed the flow. I cleaned it thoroughly and then tested it in a pan of boiling water to make sure that it opened at 195 degrees...it did. When I got it all back together the temp gauge needle was reading in the normal range.
(1) Replace Temp Sensor TSB:
http://autorepair.about.com/library/faqs/bl511f.htm
There was a TSB on this problem. Replace the Temperature Sender with Ford part number F1SZ-10884-A and that should fix it.
(2) You want to make sure that when you replace the OEM thermostat that you just don't replace it with an "similar" one but an "exact" equal. If you don't want to spend the big bucks for the OEM, Stant makes 2 thermostats for the Explorer...one is the standard one (ST13959) with an air bleed off vent and the other is a heavy duty (ST45369), but without the air bleed off vent. If your OEM works, don't replace it simply to replace it...verify that it and any new one you put in actually functions by doing the boil test. If you do not use one that matches the OEM, expect air in your system. If you shop around, they can be purchased for about $7.00 and $10.00 respectively.
Good luck - Jay