At the same time I would replace the thermostat! Your gauge takes a reading from a sensor on the back of the block - it should have a spade connector to it near the bleed valve for the coolant. I think there is then another sensor on the radiator itself for the radiator fan to kick in. As long as you aren't going into the red or above 110 on your info centre I would not worry about it.
If I had the same problems as you have I would:
Flush cooling system, replace water pump, replace thermostat, clean the connections on the sensor for the coolant and the radiator fan sensor.
That should cost about £35-£40 and be an afternoon of work if you are competent. Same job took me about 8 hours including changing the timing belt and pulley/tensioner.
Reply here if I can help anymore! I think there are some pictures on my project thread here:
http://www.volvoforums.org.uk/showthread.php?t=39879