Ok, decided to do the bypass last night before the rain hit and made some progress! So as you stated, I bypassed it at the heater core and afterwards let it burp a bit more. Temperature did stabilize right between the O & R markings. Decided to take it for a test drive and for the most part stabilized right at the same spot or right under the R mark. So far so good!
Now I did notice that while it's stable, when ever I rev the engine up or accelerate for that matter, the gauge will start to drop right about the N mark and eventually will start to make its way back up to the R mark. Sometimes falling short but now it won't go passed it.
So I think you got me on the right track here. Assuming that without the heater core in the equation could the current needle swing I have still be attributed to air still inside?
I am running a Motorcraft RS-90 16lb cap and after one of the runs last night I did look inside the over flow resevoir and can see a little bit of air still coming through. Originally I had an aftermarket 13lb cap and never had a problem with it although it did fail a recent pressure test. Do you think dropping back to a 13lb cap will allow any trapped air to bleed out to the overflow resevoir? I am wondering now if any air is that is still trapped inside is having a hell of a time getting passed that 16lb cap?