The sender unit or the instrument display is a liar. If she really hit 260deg she would boil like a hog shaver bath. No way the temp could fluctuate that fast. Believe the heat gun after you test it on a kettle of boiling water (212degF 100degC).
JM2CW I always run a tstat on a street engine to keep the running temperature constant. A constant temperature means all the metal parts stay the same size with respect to one another. The tstat also makes for a faster warm up, less cold engine wear. Why do you think we warm Midget and Sprint engines up with a water heater and pump before we start 'em up? Cold engine wear, thats why - we learned the hard way.
Mango is right and has touched upon several points that maybe the ordinary street car driver might no fully recognize.
A T does not have all the sheet metal around it that the normal car has, so it usually runs cooler, more airflow to the radiator and cooling jackets. Yes, cooling jackets. Enclose a motor in a tight space, with only the radiator to cool it, it will run warmer than normal.
To make horsepower, you have to run lean, as in, not too overly rich, and you have to be efficient about it. Get the right timing, the right compression with the right mixture and the right intake flow and outward exhaust flow, your going to make horsepower. It is a strict byproduct of that efficiency I told you about.
A stock block and cast heads, depending on THEIR MAKE, some will run hotter than others. A car with a smaller radiator and a larger motor will run warmer. Throw a auto trans. with the cooler plumbed into that same radiator, and it gets quit toasty especially if there is a 3500 converter sitting behind something that has some power. See where I'm going with this?
Now, all the guys out there running alum. heads, run a thermo, because you need the heat to make power. But, its as Mango said, you need to heat there because those big alum. heads act as heat-sinks, running so much cooler than their cast iron counterparts. Alum. heads first came out in cars to lighten the front ends, thats way before be began to mess around with changing the centerlines on the valves and combustion chambers....
Thing is, every motor is different. If the motor runs cool, don't remove the thermo, if it runs hot, then run a restrictor. To make horsepower you gotta run hot, but heat can kill your auto trans. You gotta us your heads, We can give you info to make tons of power, but can you use it? Probably not on a street car.
Small radiator on a 390Fe or a Hi-Perf 396, even in a bucket, might run pretty warm. 205 and 210 isn't that warm anymore. In a pressurized cooling system, its pretty normal. 195 and 200 is pretty normal on thermostats. However, I like my coolant to be lower, in the 165 to 185 range, but I'm running alot of boost and a lot of static compression in a almost totally billet motor that has ALOT of stroke! My efficiency is way on up there and I'm fighting to keep mine cool on a cool day with 2 large SPAL fans and a big radiator.
Thing is, you have to make compromises. Compromises you like and can live with. Some motors run hotter than others. If you run a blown flathead....you cooling system better be up to snuff. The Thermostat helps cool your car by keeping your coolant in the water jacket until it heats up, then allows coolant to flow till its cool enough. Usually, when it opens, it does not close again, because that motor, is steadily putting out heat. It'll close somewhat, but not close all the way....If you use a restrictor that is the same size as your stock thermo housing, you'll have the right amount of back pressure within your cooling system.
If your worried about pumping your coolant too fast, if your running your stock pump, your probably OK, you can always change your pulley to get more flow or less flow. Its all a series of compromises!