and normal engine temp (180) when running on the hose. Any ideas what could be going on?

I would guess that you're not getting as much water through the hose as you are when in the water.

Well I guess if that's the case, why wouldn't I be able to bring the engine up to temp at 180 while running in the water? Thx

130 is not a problem unless your oil temps are too low. If you are getting condensation you may need to add an oil thermostat to bring it up some. Oil should be around 210 on a run.

How about the best location for oil temp sender for those temp #'s? In the pan or the block?? Has anyone tried the different locations on the same boat for commparative results?? Ones guys 210 might be the same as another guys 240.??.......

PS. JGB - those are the same kind of #'s I've always seen. I run a 140 degree thermostat with bypass hose. I guess when the boats in the water the supply is just that much better. I would think a water pressure gauge would answer that question.

Thanks guys I guess I better just move to doing a compression. check. BTW, IS a max of 4500 rpm normal for an '85 merc 260?

I've seen them in the pan and in the oil filter housing. Oil temp between 200 and 280 is fine so a 10 or 20 degree difference at different points on the engine is insignificant. I have been told that up to 320 is okay for short times also but it is a little freaky seeing it up there.