Well, after many tries with HVAC blowing out cold air and the temp gauge getting way too hot, I found this following technique online...It worked so well, I copypasta'd it. May anyone down the road with a similar issue have as good luck with this knowledge as I did.
"Cutting the story short, what worked was a combination of a few methods. I elevated the front of the car about 6 inches. Removed the radiator cap and bleed screw. Turned the ignition ON (but didn't start) and set the heater temperature 90F (max), left the ignition ON (but not sure that mattered). Filled the integral coolant resevoir with 50/50 mix until it was all the way full to the top.
Then here's the critical part that worked. Removed the upper radiator hose at the radiator end (THANK YOU whoever suggested that). As soon as I loosened the clamp and cracked the seal, the coolant level dropped dramatically. I added more coolant (50/50) slowly into the upturned upper radiator hose for next 10 minutes until it simply flowed out the upper radiator open port, (and coolant resevoir was also completely full simultaneously). Then put the bleed screw back, radiator cap, upper radiator hose, snugged all. Started the engine, revved to about 1500 rpm, heater fan blowing, warm air started coming out in about 2 minutes (that's the key to knowing it is bled). Then idled (and revved) for nearly 10 minutes to make sure it didn't overheat AND that heat continued to blow out the heater vents even at idle. All was well, no more problems."
http://www.bimmerforums.com/forum/sh...olved-E36-1996
Thanks to everyone who helped me!