2001, 6 cylinder, automatic, 94k miles, 2 door, completely stock. Engine starts fine, but the oil pressure gauge sits at 0 until the RPMs exceed 1k. When in motion, the gauge shows 25-30 , but drops back to 0 when idling at a stop. Replaced the sending unit, no change. The test gauge shows 40+. Is this just a bad dashboard gauge, or is there another potential issue I should explore before I replace the dashboard gauge?

What you say almost sounds like a classic 0331 cracked head symptom.
Almost.
When you say the mechanical gauge says 40+ is that at an idle?
I am guessing it is.
Just curious. When you had the mechanical gauge on there did you let it get nice and hot?
Curious as to what the pressure would be at a very hot idle.

The gauge sits at zero when idling, even when very hot. Jumps up to 40 when the RPMs go past 1k. The test gauge shows good pressure at hot idle. I removed the oil cap while the engine was running and could see the oil flowing. The oil looks good; not milky.

If by test gauge you mean a mechanical gauge they don't lie. It shows 40+ at what rpm? What brand sensor you using?

Is the dash gauge that fancy electro-digital stuff, or a needle and LED (which needs a 2 wire sender)? Sounds like it is the readout, not a real engine oil pressure problem.

Just buy the MOPAR OEM sensor. Pretty much every other brand sensor is a crap shoot.

So this is good and maybe the sensor is just bad out of the box.
downs brings up a good point. When it comes to certain sensors on Jeeps it is just best to go with Mopar ones.
I had to replace mine in my '00 but I took a chance and used a Napa one. The Echlin line one. Not the MPE line one.
Been about 4 years now and so far so good.
What brand did you use?
I don't know if you want to go through all this trouble but owning an '00, cause of the possible head issue, I like to keep an eye on things.
I plumbed in some fittings so I could check my oil pressure with a mechanical gauge anytime I want without having to remove my sensor.
It also lets me run both at the same time so I can see how they compare to each other.

For electrical sensors, yes. For the oil pressure switch...no. The one time I bought a MOPAR OEM oil pressure switch, it didn't even last 3 months...by far the worst one I've ever put in a 4.0L. Even the cheapest ones have lasted me several years at the minimum.

O'Reilly and Auto Zone both have reasonably priced, lifetime warranty, oil senders. Upside there is if it goes bad, you can pull it in their lot, take it in and exchange, then install the new one right there too. Don't forget the Permatex thread sealer.

One thing that might be involved here is after 2002, Chrysler changed the oil pressure sensor for the WJ to be just a slide switch that only turns on at 40 psi instead of an actual pressure sender. This signal is sent to the PCM which sends a 40 psi signal to the dash gauge. I bought one of those at NAPA because the counter guy gave me one for a WJ, not a specific year. It's possible the OP got one of those and not the one for the XJ. I found out about this dumb switch on wjjeeps.com and went to a dealer and got the right one. I also bought a Mopar switch at the dealer for my XJ and I think it cost me $70. They almost made a mistake and gave me one for the 2.5L which was cheaper.

The parts store may have also given his the switch meant for vehicles with just an idiot light, instead of the sender for the guage. Noticeable price difference usually.

I think on the '97 and up the sensor does not matter. Think it is only a '96 and down thing.
Cause I thought I read when guys go from a idiot light cluster to a gauge one on '96 and down they need to swap out sensors too.
On '97 and up I think it is just plug and play.
Of course I could be totally wrong.........

My 1996 XJ uses a one wire sending unit, it drives the pressure reading gauge on the dash. If it had an LED warning light in the gauge, it would be a 2 wire. When looking for parts, newer years and other Jeep models with 4.0 showed a visibly different sending unit. Try to find a video where they replace the sender on your year, model, and displacement and match that.

Side note, if you ever suspect a bad relay, take the suspect relay into the store, even the dealer, and have them match it. For some reason, every time I go anywhere for a fuel pump relay, or a starter relay, they produce the giant square relay that goes into the ABS sockets. Not the smaller rectangular relay. I don't have ABS so the only variety in the vehicle is the smaller one.

When I switched out the idiot light panel for a gauge panel on my '96 all I had to replace was both oil pressure and temp gauge sending units. The connections for both were the same as the ones I replaced.

I know that if I want to switch to the gauge and LED sensor on my 1996, I am going to have to add a wire or replace that part of the harness, because there is only one wire coming out of the socket for the sensor.