I would not expect to see any faults, unless the engine or other warning light is illuminated. Having
MES available should allow the coolant temperature as seen by the engine control unit, or compuer, (ECU) to be monitored. If it does not fluctuate in a similar manner to the gauge, then the possibility of serious airlocks in the cooling system can be discounted. This use of
MES would also tend to confirm
@MKUser 's opinion that the problem is with the temperature gauge circuitry.
Mention has been made of a possible earthing problem. The descrition of the earth connections on MKUser's vehicle does not match with standard x224 vehicle wiring as he mentions two separate earth leads at the battery negative post, where only one is standard fitment. To explain, the earth cable on an x244, runs from the battery negative to the main chassis earth point below the front of the battery to the chassis earth which is in front of the RHS engine mount. At this point a "flag" terminal is crimped around a bared section of conductor. The same cable is then routed under the intercooler and radiator to emerge close to the vehicle centreline, and terminate at a starter motor fixing.. My PVC has a second smaller cable at the battery negative which connects to the habitation negative. The only other applicable earth connection is that for the instrument panel. On the x244 the analogue indications all use electronically driven stepping motors, but it seems tat only the temperature gauge uses the main engine earth for the sensor return path.
If the engine earth is sound, then other possibile causes are faulty connectors, or faulty wires, but why should these become OK as engine operating temperature is reached. This could be checked by connecting an electronic multimeter in parallel with the sensor connection on the instument panel. It may be possible by back probing of the appropiate instrument panel connector, bu it would not be the easiest of connections to make.
SPECULATION
If sensor and wiring including earthing are OK, then the instrument panel becomes suspect. I am begining to think that perhaps an analogue to digital conversion fault, where perhaps the second most significate bit becomes indeterminate, could explain the fluctuations in the reading.