I'd say you are correct on your radiator cap "popping off" diag (installed incorrectly). Reason your gauge showed "ok"... coolant temp sensors like to be in coolant. When they become hot air sensors things get extremely hot before you know whats happening. If it's a nice cherokee and worth keeping I'd pull the engine and go through it. Cheap gamble would be to pull the head, resurface it, and throw a gasket on it and hope for the best.....and get a new radiator if you haven't in awile.

BTW....the dealer I work at got in a clean 92 Cherokee 4x4 w/t 67k miles. They advertised it and the phone went crazy. Sold it within an hour for $5500.