Ive gotta 02 xj sport with an aluminum thermostat housing and a leaky plastic cap.. is it my thermostat??? Temp hovers around half way then drops but never overheats.... plus i have the check engine light..

 

If it drops on the highway, your thermostat is bad. You should have a metal cap when you have a metal tower.
Research "realgauge" on this forum and learn about the Jag temp gauge and how it lies.
I'd recommend getting your codes read as well.