help! '97 A4 oil temp gage pegs when engine running
 

Any clue why my oil temp gage pegs to max when the engine is running but reads correctly when the ignition is just switched on?

could be a faulty temperature sensor...
 

look at the harness plugged into the bottom of the oil pan. Check to see if it's corroded or damaged in any way. Either way you should have a dealer check it out, it may still be faulty.