our setups sound very similar, my temp gauge sensor is at the head too, and fan switch is at the thermo housing. I too saw 230F on the gauge and did not like it. That part does run hotter than the thermo housing. I wonder if the fluctuation is the thermostat opening and closing..... doing it's job. But the fan switch should work the way it did before, so if it now doesn't come on, maybe you are right and it is no longer in contact with coolant. Does this happen at idle? Gets better as soon as you give it steady gas? with higher rpms the water pump may be able to move more water and put the thermo switch in constant contact with coolant.
When my fan comes on, the head temp starts going down almost immediately. My switch is adjustable. (Fact I did not know until I started pokin around it and saw a small screw... I bought it assuming it was not adjustable since the mfg specs did not say anything )
You may also have a water pump problem, is it relatively new? Need to make sure it moves enough water.
The way I purge air from just about all cars is with the help of a burp funnel made by Lisle:
http://www.amazon.com/Lisle-24610-Spill-Free-Funnel/dp/B001A4EAV0 I think I used it with my Nova too? been too long. It allows bubbles to come up higher than the radiator, and then fluid in the funnel replaces the air without letting new air in.