Re: 5.7 GM only runs at 120 degrees
May be out in left field, but you may want to check your thermostat again. I have a 4.3 (5.7s little brother) but if the coolant system is the same, the coolant circulating in the engine may never be getting to the temp sending unit.
On mine the thermostat wouldn't open....and the temp sending unit was in the thermostat housing on the "cold" side of the thermostat. It would heat up to 100-120 but that was just the heat from the engine being transferred through the metal. Tested the sending unit, tested the guage, then tore apart the thermostat housing and realized none of the coolant circulating the engine was ever getting out. Luckily I had not been running my boat hard this Spring so I didn't cook anything. Replaced the thermostat and all is well. Heats up to 160 and stays there. Might want to check the manual to see if your thermo housing is the same....might be something else to take a look at?
If it's different...sorry for sending you on a goose chase.