My 2003 XK8 4.2 V8's temp gauge goes to high and engine too 🔥 . Coolant bottle water ok. Some greenish sludge next to water pump assembly in engine compartment. Fans kick in early after a short drive. What could be the problem?

Some greenish sludge next to water pump assembly

 

The 4.2 engines are supposed to be filled with DEXCOOL coolant, typically orange. Mixing it with the older green coolant reportedly makes the mixture gel and clog the entire system, leading to overheating, etc. I would say start by double checking what is in the cooling system already.

PS: make sure you keep this overheating to a minimum, these engines are not entirely cheap to rebuild.

 

^^ What he said. Ensure that you are running the correct coolant: It must meet the M97B44-D specs and is usually orange in color. Any out-of-spec coolant will eventually cause internal gelling which can ruin your cooling system which will in turn ruin your engine….