I have a 88 XJ so I have some insights. The 87-90 XJ/MJs have what is called on this board as a closed cooling system. After 91 they went to what is called an open cooling system.
The closed cooling system has radiator without a radiator cap. What you called the overflow bottle is really a pressure bottle and that plastic cap on top is the "radiator cap".
The weak point in the cooling system is that plastic pressure bottle. A lot of people lean on it when doing work, this damages the bottle and at the worst time it fails and you are without any cooling system.
Moroso makes a an all aluminum bottle you can attach to the firewall and use a conventional radiator cap on it. They guys who did that say it works great. You can also get a new bottle from quadratec.com for $20.
Examine your heater hoses, if there are aluminum bands holding the hoses to the wye fittings then you need to change them, they are 15 years old.
You are running too hot, my XJ runs between 200 and 210.
My guess is your XJ still has the factory radiator, time to install a new one. Also time to change hoses. I posted on here yesterday all the stuff I think you need to change. Buy your radiator hoses at any parts store you trust but buy the heater hoses at the dealer. The aftermarket heater hoses just don't lay right. There are 6 sections of heater hose.
Before you change the radiator I would change the fan clutch for the mechanical fan, and install a new Mopar 195F thermostat.
Here a web site with articles which will help you figure out the cooling system.
http://www.olypen.com/craigh/tech.htm
You can convert to the newer style system BUT what to do with the sensor for the electric fan is the problem.
Any more questions, just ask