Ironhorse,
I just had a thought that I read on another site. Are you running your smoker off an extension cord? According to what some poster had cautioned, this can affect temperature as would sharing the outlet with another electrical appliance.
I initially had the same issue. No matter what I couldn't get up over 175. Turns out the power strip I was using was severely limiting the current- I discovered the issue when plugging in the smoker caused the exhaust fan I was using on the same line to sag drastically. Once I replaced the strip with a dedicated cord all was well.
I will say Steve offered to send a new thermostat. I had feared that I damaged it rolling the unit over on top of the knob while unboxing it by myself. Turns out it was just the cord. There's not a lot that can really go wrong with it! It's an insulated box with a thermostat and a heating element. If it's producing heat, then by deduction there's little else that could be wrong with the actual unit besides the thermostat. But since a smoker like this is often sitting out in the yard or on the deck, running off a long cord I would suspect that's the issue.
Have you tried putting a thermometer probe down the vent and monitoring the temp over time? Not saying you're measuring wrong, just trying to help troubleshoot. It's natural for the temp to have fairly large swings.
Lastly, what's the ambient temperature where you're using the smoker? While it's pretty well insulated I imagine that in very cold temps you may have trouble getting up to the max temp. I've used my #3 down to around 20 or so with good results. In fact, it's about 15 degrees right now and I'm running four racks of ribs.