On/Off control works fine, personally I measure temp just before the return manifold on the output of the heating chamber/exchanger. If your flow is reasonable I have found that grain bed temp is right there with output temp, if the probe was elsewhere in the system then i doubt they would be that close. Actual use has shown them to end up very, very close in temp.
On the pump priming issue, so many people have trouble with it but it really can be very simple. My recommendation and the technique that i use is to design your plumbing so that you can fill your lines before grain ever hits the system, and that you can fill any line in your brewery at any time. I use my HLT as the source for filling the lines. Here is a plan of how my plumbing works (I'v used the simple picture, it now has a HERMS for fun but the procedure is the same).
This is how my brew goes. I heat my water in my HLT, once I'm at or near temp I open valve 1 and valve 4 (valve 2 and 3 are closed, so nothing flows). Then I open valve 2 wide open. This blows air out of the pumps inlet and starts to fill the mash tun through the bottom via gravity. Close valve 2. Open valve 3-gravity from the HLT now fills that hose. Now I turn the pump on and pump the hot strike water over to the mash tun from the HLT and run it at full tilt, this clears any remaining bubbles. Close valve 4 (and valve 2 if you want but it's not needed).
Once my mash tun has the required volume of strike water, if it needs a bit more heat I'll pump it though the heat exchanger until it gets to the required temp or I'll use a hand held element, either way I just let the pump run. Then I close valve 3 and mash in (pump can still run, valve 2 can still be open, nothing will flow). Once I'm mashed in and finished stirring I will give it a minute to settle and then slowly start to crack open valve 3. Valve three is where I regulate the pump flow speed.
Notice how I can control the speed with valve 3 standing upright, looking into the tun while watching the actual outflow speed rather than bending down and adjusting a valve directly on the pump - blind to what is actually coming out of the pump (this is something to consider). Having the valve controlling speed at the bottom of the system directly on the pump is a little clumsy in my books. I can watch the outflow and change the pump speed and keep adjusting it until I'm happy with the flow.
I also dont have to disconnect any input lines throughout the brew so I dont lose prime. If for some reason I do loose prime I can just fill the hoses from the HLT again. Simply close the valve on the vessel, disconnect the hose from the vessel, open HLT valve and let the water fill the lines again, close HLT valve then reconnect the hose and you are ready to go again. Pain free. Trying to clear air from the pump lines using wort from the mash tun just doesn't work because the flow isn't there and you are being careful not to compact the bed, use the HLT and you can crack it wide open. Just make sure you disconnect the end of the hose so there isn't an airlock preventing flow. This is where most people come unstuck i think.
In this picture when I transfer to the kettle I'll close valve 2 and move the hose going to valve 3 over to the kettle. Then I'll control pump speed transferring to the kettle using the kettle valve.
Hope it gives you a few ideas. As always, I'm happy to answer question if you need it. Good luck and hope it works out.
More pics here:
http://hbd.org/discus/messages/366/33903.html?1187742085