My 1998 XJ8 doesn't blow hot air when the car is at idle (and after it's been warmed up), however once I start driving the heater air almost instantly warms up to where it should be. I can also get it to blow hot air when I hold the engine RPM at around 2000 to 2500 while in park.

I topped off the coolant system, and there are no leaks that I can see. The first thing I would suspect is the water pump, but I put a new one on this past March when I did the timing chains and tensioners.

The only other thing I can think of is the serpentine belt. While it seems tight, I get major slippage when I drive through a puddle or when I'm in the car wash. It slips so bad that the carging warning message comes on and the power steering is nonexistant for about a few minutes until it dries off. Could the belt be slipping at low RPMs and not sufficiently turning the water pump?

 

I would suggest you look at the Auxiliary Heater Pump. It's found on the Driver side fender close to the firewall. It's a common issue. I replaced mine with a junk yard one for $15. Been working great since. New they were around $400 when I was looking a couple years ago. It's an easy fix. Just search for Auxiliary Heater Pump and you should find a bit of info on it.

Here is a good read-up for repairing it:
JagRepair.com - Jaguar Repair Information Resource