[Walt Fricke]

If the signal wire to the gauge is grounded, the gauge should read zero. If you disconnect the signal wire from the gauge, it should peg. If this works at the gauge, try it at the sender. Result should be the same. That leaves only the sender. You have seen how simple it is - a resistance winding with a sliding connection. If the resistance wire wears through, you get funny readings. However, your tests show the gauge is, at least on a gross scale, working - it is creating a varying resistance. I can see why you are baffled, having checked out all of the three possibilities, but it has to be in one of these areas. It certainly has nothing to do with the gasket, which is just there to keep oil from leaking out as it sloshes around in the tank.