Agreed that oil temperature going to the bearings is important. Too hot or too cold is equally bad.
On the other hand, having the temp sensor in the pan does give you a very good warning of a problem since the pan temps will go up very quickly if a bearing starts to go bad, but before you loose pressure or do serious damage. Most of the prod guys I run with have the sensor in the pan. If I could, I would install both and use the pan temp as a primary gauge to watch during the session, and use bearing supply temp as a secondary gauge.
[This message has been edited by Greg Gauper (edited May 29, 2004).]