Is your temp sensor installed with teflon tape?  It makes a pretty good insulator and can prevent your ground condition to fire the relay.

Missed #7 above.  Where are you grounding it to?  Is your engine block well-grounded to the frame?

There is another slight problem, if your relay has an internal diode to help save the sensor contact. The way you have the 85 and 86 is backwards. You will either blow a fuse or toast the diode in the relay. If this turns out to be a problem jumper 87 to 86 (instead of 85). Run the sensor to the 85 contact. If you don't have a diode in the relay it will burn the sensor contact up a lot sooner. If you use a key positive to switch off the relay it could burn the key contact up sooner.

You could check continuity from the case of the sensor to the engine right next to it.  And, if you clip the sensor wire to the engine block the fan should also come on as it did when you went to batt negative.  If you don't have continuity from the sensor case to engine ground, remove the teflon and try some pliable form-a-gasket.  If you do have continuity, then the sensor may be bad.  What is it's temperature rating - close temp and open temp?  And related to some earlier posts, are you sure that the sensing element is fully immursed in coolant?  I think when you look at the sensors (someone posted a nice link showing a long list of them) they show the on/off temps, the thread type, whether they are normally open or normally closed, and the tip extension.  When your engine reaches operating temperature it should close so that is another test you can do.  It's not a bad idea to run another sensor ground wire into the interior somewhere and put in a switch which is just a simple switch to ground  You can hide it under the dash out of the way.  In the event that the sensor fails, you can over-ride it with the switch.  I used this setup to cover a potential bad sensor and when I was running on the highway.  Seemed like the car wanted to get hot quickly when exiting so I would turn the fan on manually as I was exiting before it got hot.  That approach seemed to work better than having a lower temperature sensor and I always turned the fan on in stop and go traffic.

I don't think you need to do anything with the sensor just move the positive wire.

Ok. Ran the new temp sensor. It works great. At idling on the driveway it never got above 200.  I moved the switch power wire for the fan to a switch 12V. Now the fan runs all the time. I used the switch 12V on the ignition switch.  As soon as I move the key to "on" the fan comes on. That's a lot juice to run at start up. I am also running an MSD box as well.