Hey Losh,
I'm trying to think whether I can help with this as I have done the whole dash out , re-construct heater box thing a couple years ago on my VP. Also looking at VT2commie's reply above as a prompt for my (ageing) memory. Suggestion, (good if VT2commie can confirm please) look at other end of the rod activated by the heater on/off control, so on the glovebox end of that rod, to check that the blend flap end is connected and working as it should. You may have to drop the glovebox out to get a better look. VT2 indicates there is an adjustment on that end also. How big a job the blend door is probably depends on whether the problem is at the connection on the end of the temp control rod or at the other end which is buried up next to the firewall. The seals on the flaps were all pretty shagged on my job so I replaced them with self adhesive felt (I think) from our local Spotlight. Don't know how that may have changed clearances etc but it is ok in our temp range.
To be honest the dash out job is such a pain in the proverbial that I think my brain has done it's best to forget all about it. Definitely there is something not right in your ute that you get cold air out with the heater on and aircon running. You should get hot/warm DRY air which is why it clears the windscreen of condensation so quickly. Mind you I do not operate my car (in Nowra, NSW) in the cold temps you are indicating.
Keep us posted and ask more questions as you proceed as I may remember more as your questions prompt me. Good luck with it.