Yes, going from "reading too cold" to "reading max hot" absolutely sounds like the incorrect part used.
Once you get back to the correct sender, and then address any potential ground problems - at and next to the thermostat housing, from the battery to the fender, the two straps from firewall to rear of passenger cylinder head and same spot on firewall to the frame, and finally the dash cluster ground attached to the tab under the dash same spot as the ALDL connector.. once all those areas are addressed and sure to be connected, clean, and tight.. and the gauge still reads low?
Verify the engine's actual temperature with an IR temp gun aimed at the intake around the thermostat housing, scan for max temp, with the engine fully warmed up. If it's not reading close to 195F then you may have the incorrect thermostat or it may be defective. Fan clutch could be stuck engaged. Etc.
If you ARE reading close to 195F then you re-pin the needle on the cluster to a known setting. Engine fully warmed up, double check with the temp gun, gently pull the needle from the cluster and re-install it at the correct spot. None of these gauges are accurate, but you can at least put them where they belong when measured against an accurate tool like the IR temp gun. That way when it's colder or hotter than the known setting, the gauge should reflect that.
Richard