E34 lack of heat (long)

[bmwrick]

Ever since last November, I've been troubleshooting a lack of heat problem with my 1994 e34 525i.

Basically, the discharge out of the vents (upper and lower) will be about 145 degrees F with fan speed on lowest setting, but the temperature drops to 105 degrees with fan on highest speed. This is ok unless the ambient temperature drops below 15 degrees F, then the system is barely able to keep up and keep the cabin comfortable.

I've performed the following

1) Replaced the thermostat with a 92 degree C unit from the dealership
2) Bled the cooling system - 3 or 4 TIMES at operating temperature - per the Haynes service manual
3) Removed, but did not replace the micro-air filter.
4) Removed and disassembled the heater bypass valve. The two black rubber bellows were disintegrated. I cleaned up the unit and reassembled LEAVING OUT the two brass plungers, and reinstalled the unit on the car. I figured for winter full water flow is a good thing.
5) As I do not have automatic climate control, I removed the control panel and checked operability of cabin temperature thermistor and its resistance changed as the temperature changed. I checked the resistance of the left and right rheostat switches.
6) Using a thermocouple wire and electronic temperature unit, I measured the temperature of the metal hose clamps near the heater bypass valve after the car had reached operating temperature and the temps were in the neighborhood of 145 degrees F.

What do I do next?