Permanent oil cooler vs thermostat

[Deuce Cam]

The flaps in the heater core box look normal so I doubt that's your issue.

I overlooked your mention of the coolant gauge reading in the middle which is normal, although it's very strange that it reaches normal temp so fast. (It won't even do that with the heater core fully bypassed.) Also, once operating temp is reached it should stay consistent and not fluctuate (at least nothing you would see on a stock gauge). Does the coolant temp drop after getting on a higher speed motorway?

If the thermostat is stuck open the engine won't reach operating temperature, which also means very poor heater performance.

A no spill funnel kit is ideal for bleeding the coolant (shown below), but some people just tape a funnel to the filler neck. Make sure the heater valve is open all the way before starting (move to full hot on hvac panel). Then raise the coolant level via the funnel and let the engine run for at least 20 minutes. I like to raise the idle a few times to 2, 3, 4k rpm - in varying degrees - for a couple minutes during the process. Also squeeze all the soft coolant hoses periodically.