Ok check the lower rad hose when the gauge gets to about 1/2, if its still cold then the thermostat is stuck shut and needs replacing. Believe it or not the 16v radiator is actually smaller than the one fitted to an 8v, the reason is it is double cored so more efficient.
Normal operating temp is 1/2 but it is normal to get to 3/4 if in traffic, this is when the fan should kick in and bring it back down to 1/2. Filling with pure water shouldn't make it run any hotter, as it is actually more efficient at transfering heat than antifreeze. The reason you use antifreeze is to raise the boiling point even more (which is already over 100 degrees when the system is pressurised) and to prevent the system freezing in the winter.
Check that coolant flows freely from the small hose to the header tank when you raise the throttle over 1k rpm too.
The best way to bleed the coolant system I have found:
Run the engine from cold with the cap off and rev it to 2k now and again. While you are doing this squeeze all the pipes you can get your hands on, and keep the coolant level topped up. It will eventually start to boil over, at this point turn the engine off. Once its settled down top it up to the max mark and you should be good to go!
P.S. you don't need to set the heater slider to hot when bleeding the system, as the heater matrix always gets a flow of coolant. This advice dates back to the MK1 which uses a 'tap' to close off flow to the matrix.
