Hi. I have UK market 2000 model year 3.2 XJ8.

When running (especially in cool evening temps here in the UK) the temp gauge doesn't get much beyond 25% from cold. It will get up to 50% if it left to sit and idle. Additionally the heater at full heat doesn't feel as hot as I think it should be. Could this be a faulty thermostat? I'm aware the temp gauge is software driven so may not be a true reflection of engine temp.

Any clues where to start diagnosing?

 

Yes, probably thermostat stuck open or opens too early, not unusual. Consider changing the housing to aluminum and also replace the plastic water pipe across the front and any hoses that look suspect.