What's your water temp? Maybe you could record it over a 24 hours period and show us a cycle. You are right about the ambient temps. But if your rad is doing it's job there shouldn't be too much of a variation. My ambient temperature difference between night and day is about 17°C. My PC temps only vary by about 3°-5°C, if that.
Here's an idea of what I was talking about. This isn't EXACT data, it's just something that I whipped up to show my point. Take into consideration that these are educated guesses at temps, not actual logged data. Also the proc temps are idle temps, which my CPU seldom is.
I still believe that your assessment of the inaccuracy/non-functionality of your sensor is correct. Maybe you're just SOL, until you have time and money for an alternate sensor arrangement.