Well,.... Not an expert on these things, but I have learned a lot from reading while I have been rebuilding mine. If you are grounding the wires from the sensor, the gauge "Should" peg if there is no resistance in the wire. If that is the case, then your wires and gauge should be ok, which brings me back to the sensors not grounding properly.
Curious,... when you ground the sensor wires, what are you grounding them too? The block?, the chassis? Something isn't right and it sounds like your gauge is acting like it should. Could it be possible that you don't have a good ground between your block and the chassis? I could be wrong, but it sure sounds like you aren't getting proper ground to the sensor. I assume your negative battery cable goes from your battery to the block somewhere. Check that connection and make sure it is clean. I would also add a clean ground strap from the motor to the chassis somewhere.
You might try attaching a jumper wire from the body of the sender to chassis ground, to the block, and to battery ground to see if any of those make the sensor react and make the gauge work.
Here's the deal,.... the gauge needs power on one side and a connection through varying resistance to ground on the other. The varying resistance is the sender (or inline resistors when testing). That's all there is to the system. If you ground the sender wire and the gauge reacts, then the gauge is working and something is going on with the sender that it is not getting ground, or there is an open circuit in the sender. If you've tried other senders, then I would look at why those senders aren't connecting to ground. The only thing I can think of is either the block isn't properly grounded, or something is interfering with the connection between the sender body and the block, or in this case, the water pump housing,.... Correct?
I guess I don't know what motor you have..... Is the temp sender in the water pump housing like a normal big block? Could it be possible that the water pump housing isn't grounding to the block. The only thing that would connect them is the bolts and the housing face that mates to the block. There is a gasket in between the housing and the block, so that may very well be insulated, leaving only the mounting bolts. If someone used thread sealant on the housing bolts, I guess it's possible it may not be getting ground to the block.
All I can say is check your grounds. It has to be an issue with it somewhere.