Sounds like a bad earth to me Andy. I've got a water temp gauge that was having the same problems, all down to the earth on the sender.
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My Build Diary - http://davesroadster.blogspot.com/
*updated 7/6/11*
Best bit so far: Getting it running
Worst bit so far: Cutting steel for wishbones and engine mounts.
Most annoying bit so far: Generator packing up half way through welding.
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