The instrument voltage regulator is nothing more than a bimetallic strip that makes and breaks the connection between the 12v source and the gauges. It supplies an average 5v (approximately) to the gauges. That is what heats up and cools off, nothing to do with the gauges heating up.
Why did they use that? It's cheap, it works and it is sufficient unto the day. Nothing more. I am sure it was developed in the 50's when they converted to 12v and your other option was a vacuum tube, not optimal at all. remember transistors were barely 10 years from having been invented. By providing the gauges with a run voltage less than 12v you can eliminate the effect of the charging system voltage fluctuations on the gauge readings.
Mid 30s saw the advent of voltage regulators. As cars started adding electrical features, there was a need to be able to supply those loads and maintain a battery. Though the transistor was invented in 1947, it would be 20 years later before the solid state voltage regulator would be invented. Given the newness of the technology, I am sure it was much higher costs than the analog regulators used at the time.
