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You could try changing the sensor. It is a cheap fix (about $20 I recall) and would take all of about 10 minutes to change, in DIY mode. Word of caution, make sure the engine is cooled down before attempting this, as hot coolant might scald you! Also, keep the new sensor close as you unscrew the old one. Once the old one is out, use your finger to keep the hole closed (to minimise coolant loss) and quickly screw the new one in place.
I was told by the dealership manager that the "implausible temp" could only be caused by either 1) a faulty thermostat or 2) the coolant temp sensor. In your case it sounds like the thermostat is fine (judging by your comment that the needle sits in the middle when the engine is warm, so it might be worth changing the temp sensor in this case.
Hope this helps.
Rudi
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2001 Imola Red II E39 M5 - Stock
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