The fuel sender is a variable resistance to ground; the fuel gauge
basically measures how much current is flowing through the whole
circuit.  I believe that when you test the sending unit you should
measure the resistance between the screw terminal and the body of the
sender, it should match whatever the specs are for a Stewart-Warner
sender (I think 33 ohms when full, 240 empty? check and make sure, this
info should be available on the web) if it meets those specs and
resistance varies smoothly through the whole range of travel then your
problem is likely in the gauge, or the wire between the gauge and the
sender.  If you have a ground on the wire between the gauge and sender,
that would cause it to peg all the time, so check the body harness for
crimps and chafes.

Also, if you are using a 6V gauge and sender in a vehicle that's been
converted to 12V, you need to either replace both the gauge and sender
with 12V versions or use a "runtz" to drop the voltage.  The specs I
gave above are for 12V gauges only.

good luck,

nate