So my '94 pickup only gets up to about 1/4 of the temp gauge when fully warmed up. Never owned a toyota but all my other vehicles the halfway point is the sweet spot. I've read this may be normal for this truck (?). So that leads to the next question,

I've also read some people saying that this engine runs better and is more fuel efficient when its running a little hotter (more than 1/4). Does this have some truth to it? If so, what type of thermostat is recommended?

 

The temp gages aren't the most accurate from one truck to the next but seeing as yotas are sensitive to overheating I'd keep it low

 

Low isn't a bad thing. Probably somewhere along the line someone put in a thermostat that was rated differently than stock. These engines run hot, so unless you live in sub-freezing temps up north then you won't have any issues that I can think of. Now if it goes past halfway, you've got a more serious issue.

Make sure though it is not your Engine Temp Gauge Sender that's going bad. There's two sensors on the back of your engine, one that sends the temperature info to the ECU and the other to the gauge on your dash cluster. The Sender is just a one terminal unit, looks different than the other two on the back of your engine on the water bypass.