1. I may be seeing things, but...
2. Am I'm seeing some scoring in Pict 2c toward the top?
3. I'm in agreement,
4. That the oil ring

• Failed, or
• Was Stuck

5. Check the cylinder for bore and taper,
6. Hone it with a good set of stones and oil,
7. Re-ring the piston,
8. And go from there.
9. What type of rings did you use:

• Cast, or
• Steel?

10. Have you checked the rings clearance in the piston groves?
11. As for the Temp gauge...
12. Buy some Permatex Black sealant.
13. Remove the top radiator hose from the thermostat housing.
14. Clean the thermostat housing hose bib and inside of the radiator hose.
15. Lay down two 1/18" wide, 1/16" thick by 2"long beads of Permatex, 1/16" apart, parallel to each other
16. When the sealant is cured drop the sender down into thermostat housing so the sender is just resting above the thermostat.
17. Lay the capillary tube down in between the Permatex lines and smear a little sealant over the capillary tube.
18. When cured, gently push the radiator hose back into place and
19. Reseal the hose with TWO wide radiator hose clamps.
20. Do NOT use the wire type you have to remove with water pump pliers.
21. The clamps will put pressure on the Sealant and seal against the capillary tube.
22. Be careful not to crush the sender's capillary tube,
23. It will seal without that much pressure applied.
24. Use tie wraps to tie the sender capillary tube to the radiator support rod.
25. As for gauge placement, here's mine: