I am running an 4.0L from a 98 XJ that was back converted to OBD1. All the wiring is out of a 94 YJ. Here is the issue:
I believe the dash temp gauge does not run off the water temp sender in the thermostat housing. There is a single wire (BRN/YL or PPL/YL) with a flat/spade style connector at the back driver side of the block that there is no hook up for on the engine itself that I can see. I am assuming this is the temp gauge wire based on my old 4.2L and a breif look under a friends 4.0 YJ, but couldn't get a good enough look at it.
damn it's cold! the temp sensor wire on my xj runs through the plastic wire cover rail and goes into the harness/loom. the only thing attached to it's block is on the back driver side stud there are two nuts that sandwich a ground strap to the firewall. the xj might use a different setup, but your yj wiring still requires the old setup did you try to connect it temporarily to see if it fixes the issue?
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88 YJ, 350/350 Chevy, Twin Stick Dana 300 with JB 32 spline rear output, 6.5" lift, Front Scout II Dana 44 w/Yukon 4340 shafts, trac loc, 4.27's, Warn Premium Hubs, flipped YJ Tie Rod, Ford F150 front calipers, Rear Scout II Dana 44 w/Alloy 4340 shafts, HD RPT retainer plates, 4.27's True trac, Steeltech Disc brakes, Cage upgrade, B&M Prostick Shifter, Custom Fabbed tire, gas, jack carrier, 3/8 angle rear bumper, clevis's all around, old & reliable rep8000 winch. Flood lights. loud stereo. 35x12.50 swampers and a bunch of other stuff
I just converted a 2005 TJ 4.0 to run in an ODB1 YJ. The temp guage sender hole isn't in those blocks, but you'll notice a flat spot where it's located in the older castings - I drilled and tapped a hole for the sender in this spot & it does go into the water galleries, so you should get a good reading this way.
I drained the coolant first, then drilled and tapped the hole (1/8 NPT), then used a magnetic probe to remove most of the cuttings, then put some teflon tape on the sender & installed it - works good.
I needed to drill & tap various vacuum points on the intake as well - the bosses are all in the right (or close to) places, just not used. I drilled out some of the pipes so that I could use the standard YJ vacuum fittings as well - the thread on these is 1/4" NPT.