You are heading in the right direction, Hayden.. My comment on the bubble in the tank exchanger is based on a few problems that I have had on industrial exchangers that had a minimal up-slope from inlet to outlet. It happens that a long bubble can form and cause the wetted area inside tube to be only half or less wet by the circulating fluid. This alone can very much limit the heat going into the water side. The bubble is sometimes very hard to get out, but it sounds like you've purged it well .. The Red Dot is not a really good gauge because it doesn't take very much heat to heat air.... Thinking again out loud, it seems like you may have a stuck open thermostat.. The thermostat being closed gives you the most pressure to drive the coolant through the bypass..as it opens, the pressure drive decreases, the flow rate slows, and the heat transfer really goes down... BUT, if that were the only problem, all the heat would be going into the water before the Red Dot.. and that isn't what you are seeing.. The large drop across the Red Dot kinda means that your flow is a little low (again it does not take much heat to heat air).. After you remove the thermostat and verify that it is OK and not hanging open (and causing cold running and low drive pressure to the water tank) replace the thermostat.. then plug the return opening at the water pump (it will suck air if left open).. Open the return hose and let the engine pump force the cold coolant out of the return hose until no bubbles.. Unplug the return at the water pump, and re-attach.. I think your plan of attack may accomplish most of that . Again, Good Luck, hayden.