temp difference from t-stat

Mmmmm, lack of bypass will delay the opening of the t'stat, and make it operate erracticly when outside temps are cool, but once open with coolant flowing around it, then t'stat will open properly. But it is indeed best to fix it right.

I would suggest to the OP to pull the T-stat while he is at all this and make sure the 'button' faces into the engine; it could well be in backwards and would cause this problem.

Also, for best temp readings paint a patch of flat black paint on the surfaces being measured. I would also susepct that the rubber hose will run a bit cooler on the outside versus inside (as oppsed to metal) so it would normally read a bit cooler.