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[tech] oil pressure question



My oil pressure sender is bouncing all over the place when I drive.  What would cause this?   
 
So far, I figure it could be the fact that oil is leaking a little bit from the sender itself...but I'm not sure if that would affect the sender's readings would it?
 
I also did have a big puff of smoke come out of my car the other day......after I had topped up the oil....from one other thread a few days ago, I kinda figured I might have done the same thing and filled the oil a bit too much, but I haven't yet had a chance to check it.  Would too much oil affect the sender's readings?
 
Or hopefully not, but could I have some damage inside my engine that would cause this? 
 
 
TIA
Casey
84 Roc
83 Audi Coupe
86 GLi