What is the cabin temperature when it blows hot? If it's more than a degree or two below 16.5 then of course it's going to blow hot air! It's trying to achieve the temperature you set it to. Also, if you're keep adjusting it, then there's no surprise it seems erratic -you're defeating the low pass filter built into the PID control.
Get a digital thermometer for a fiver or so. The cooking ones with a probe are useful for all sorts of things anyway. I'll bet you a pint now that it's blowing hot because the cabin is significantly lower than setpoint temperature.
Have some sympathy for that poor diesel, it does take appreciably longer to reach temperature. Personally, I keep mine on 16.5 first thing in the morning whatever. If you've got it up to the max while the system is cold, you're only sinking a bit more heat energy away from the engine anyway and prolonging the situation. Then, when it eventually comes up to temperature, you'll roast.
I always leave the blower in the rear on, directed upwards. A little bit of extra circulation does help maintain an even temperature in the cabin.