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