Yes, 99.9% of fuel level sensors are simple variable resistors (if you want to get real picky it's actually a rheostat -- just a fancy name for a potentiometer wired with one leg tied to the center leg -- a potentiometer being just a fancy name for a variable resistor -- a variable resistor just a fancy name for a coil of resistive wire with a wiper).
Anyway, 99.9% of 'em are variable resistors, the rest are fancy things that work by variable capacitance or ultrasonics.
There is no way for a resistor to create voltage. When you read your battery voltage are you using a DVM or the dash mounted voltage gauge? (Dash mounted gauges are not as accurate as a DVM.)
Something you might try: disconnect the output of the fuel level sensor and measure the output to ground using the Ohms scale on your DVM.
A quick search on the internet says that a Stewart Warner sender shows around 30 ohms when the tank is full, 250 ohms empty. A GM sender shows 93 ohms full, 0 ohms empty. Ford sender shows 70 ohms full, 0 ohms empty. (Data from
http://www.stewartwarner.com/Tech/faqSc.html)
I've a feeling that either the tank (i.e. the level sender) isn't grounded properly or that you've got something shorting to the sender output. Or ... and this one would be a real long shot ... the power to your gauge is dropping out.
With a few lengths of wire you could isolate the gauge and sender from everything else. Power the gauge straight from the batter with a wire, connect the output of the sender to the gauge with another wire ... all separate from your current harness. If the gauge works ok, then connect the power from the harness to the gauge and see if everything is still working. Finally, connect the harness connection between the sender and the gauge.
best of luck!