It is possible to have a head gasket leak where exhaust gets into the water jacket and not the other way around. My 93SR had a head job done and the person did not put the washers under the head bolts. They all bottomed out before clamping to spec. My exhaust was going into the water system and pushing water out through the overflow tank.

Scott, how low was the coolant? If there is no hot water touching the sensor it will read cooler than it is.

A head gasket job is a lot more labor. You have to take everything off of the engine. It is a real pain in the <img src="/forums/images/graemlins/butwiggle.gif" alt="" />. I have done it a few times on the early 3.0. Usually takes me 8-10 hours over a weekend. It is not hard to do though. But with yours you will need to check the heads, then if they need work it will take more time.

Like said above, get a leak down test and see what you find.