I went ahead and lowered it to the lowest setting, but there was no change. The gauge went up past the green zone and I shut it off before it hit the red. At no point did the ready light shut off.

Any other ideas?

Thanks.

You are turning the small screw CLOCKWISE to lower the pressure ?

If so, I can only think of two faulty items: the new pressurestat or the installed pressure gauge. I would suggest you assemble a secondary gauge and attach it to the steam wand using flex hose and screw clamps.

Update!

I found the problem. Before sinking anymore money into this machine I decided to tear it apart and double check that everything was working properly. Everything was perfect... Until I removed the pressure gauge. There was what looked like a rock of something lodged in it. I used a tooth pick to remove it, and now everything is working normally again.

Thank you Eric and everyone else who helped!