Is my logic correct in that the problem ISN'T a sensor?

So my temp gauge does what it wants, never rises above half way but goes up and down, sometimes quickly sometimes slowly.
I have an OBD2 Bluetooth reader, and the reported temp is constant, so I know it's not a thermostat issue. But that the ECU sees a constant temp, but the gauge on the dash says something different means that it must not be a coolant temp sensor, right??

CTS (Coolant Temperature Sensor) in ALHs I know have two circuits (one for the ECU and one for the gauge). Your issue is classic failure for an ALH CTS: I've experienced it. I'm thinking that the same is likely for later engines as well. If that's the case then for sure it's your CTS.

That's good to know. Thanks!

Just an update- it was the cts

Thank you for posting your resolution.

Correct, I haven't seen this on VW (not yet at least), but on BMWs, it's also a two circuit sensor, one for ECU and one for cluster.