We've asked you to try things like turning off the engine or changing the load on the alternator to prove to yourself that it's a ground issue. Have you tried these?
The cap won't work because it averages the value. The ground issue can never lower the temperature reading, it can only raise it. This is not noise AROUND the correct value, it's all noise ABOVE the correct value. So as the ground causes an error, it's always equal to or above the real temp. Take the average of this, and the average is higher than the real temp. Plus, capacitors are not magic. Your issue is noise on the ground line, so hooking a cap to the positive line doesn't suddenly help. All electrical devices have at least one terminal, and where you hook the ground side of this would be critical as to if it did anything. Plus, the capacitor you would need would be HUGE because the changes in signals are small.
The issue is that the alternator produces current, and all currents involve a + side and a - side. The + side just isn't a factor because nothing in the sensor path uses that. The - side IS an issue, because the ground for the alternator, temp sensor, EMS, and battery are all shared. But no ground is perfect because we aren't using superconductors. So when the ground current tries to go from the alternator to the battery, it causes a voltage change along the ground cable due to ohm's law. Well, the EMS is trying to share that path and read the sensor value, but it has to assume a 0 volt change. If your ground is insufficient, there is more than 0V there and that causes an error. Thus, the alternator current has everything to do with this.
We have thousands of these units in the field, with very few issues. The issue is not inside the Dynon unit.
Hooking the ground wire of a two wire sensor up is easy. There are many free ground pins on the EMS wiring harness, and any one of them will work. So will grounding it to the EMS case or tray somehow.
Understand that we've been through this issue many times since we released our EMS products 6 years ago, and it's always a ground issue. It's hard to explain it, as it's a complex issue and tricy to wrap your mind around, but the ground between your engine and your EMS is critical to proper sensor performance.
Here are the third party two wire sensors we support. You'll have to look yourself to see if they meet the mounting requirements you have:
http://wiki.dynonavionics.com/Third_Party_Two_Wire_Oil_Temperature_Sensors