When using the heater, try using the "Vent" option on the selector dial, with the temperature dial set to red (warm/hot) setting. Vent should be just in-between the "A/C" selection and "Off". Using the selector switch on defrost setting or anything other than "vent" causes the A/C to kick in, alas causing the radiator fan to turn on.
As for your engine temp to go down, I suspect you may have a stuck open thermostat. A properly operating thermostat would prevent the engine from over-cooling regardless of the radiator fan being on or not.
It should go without saying that you need to make sure the heater has its radiator hoses attached, and the hoses (generally 3/4 inch ID) must not have any kinks preventing water flow. The cabin heater works by circulating the engine coolant through it. No hot water = no cabin heat.
Tuesday, December 20th, 2016 AT 9:12 PM