Hey there,
Most simple heaters have a bi-metallic metal strip,coiled like a spring.The end of this metal coil touches a relay, which completes a circuit, turning a heater on. As the temp of the water increases, the metal coil will heat up and the coil will expand/unwind. Eventually, the metal coil will expand/unwind enough and it will lose contact with a relay, thus opening up a circuit so that no electricity can flow, which in turn turns a heater off. As the water cools, the metal coil contracts, until the metal coil once again touches the relay, completing a circuit, allowing electricity to once again flow to the heating element. Blah Blah Blah boring boring boring........
Cycling the heater set point as you did, moves the relay contact point closer and farther away from the coil/spring. I would keep the heater at the lower band, if the problem was it was heating too much. ( This means the coil wont have to unwind as much to turn the heater off.)
What I really would do would be to bag it, and go spend $12 on a new heater. Typically, these things dont get better.
As a side note.... My wife just stuck her head in and said i'm officially becoming a Dork, as I am on a fish website talking about electical circuits. I have to go do something cool now to redeem myself....I think I'll go make her a Martini..I'll show her Dork...Geeeessshhh!!! heeheeheehee