I am assuming that this top port is the return from the heater (correct)?
Direction of coolant flow is not always obvious. The upper heater hose is actually the source of coolant flow from the block (note it is below the thermostat - which is normally closed). The lower heater hose is plumbed into the water pump inlet creating draw from the block through the heater core and 'returning' back into the block (even when the thermostat is closed). That is when the manually controlled passenger compartment heater "demand" valve is open thereby calling for heat.
When the demand valve is closed there is no coolant flow through this circuit. So the closer to the thermostat the more accurate the temperature reading is likely to be.
As for which is the correct location for a single temp gauge . . . why not fit two? If there is a huge temp spread between the liquid just below the thermostat and the steam at the roof of the combustion chambers (near the exhaust ports) might it not be a good time to pull out of the parade or Woodward cruise and park it?
