and i know my thermostat is working, its goes from no reading and climbs to about a needles width past the first mark then it opens and drops back down.
Are you certain that you even have a thermostat? Low temps at or below 1/2 gauge usually mean there's no T-stat.
As for the OP, the gauge is notoriously inaccurate. Also, if you read the manual for your car (the one that comes in the glovebox) it will state that temps up to about 3/4 to 7/8 are still within "Normal"
If after changing your T-Stat, the temps are still on the high side, but the fans still work as normal and there's no residual pressure in the overflow tank after a nightly cool down, then I'd say you're ok. At that point, you may try to replace the sender for the gauge, or the gauge itself.
Here's a link to my post when I was worried about the operating temps on a 1991 ECODiesel. I ended up selling the car 2 years ago, and the girl comes in for repairs every now and again. The car still runs great. Better than any diesel I own, and it's got close to 200K on it.
http://www.vwdiesel.net/forum/index.php?topic=9958.0