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I'm tapping out the drain plug hole on my auto tranny to install a temperature guage sending unit. Problem is I dont know if the OEM gasket will work with the larger diameter hole.......Can I use teflon tape on the NPT threads or should I use Blue (or Black) silicone sealant?
 

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Teflon tape should be fine. It's what I wrapped around the threads of the oil pressure gauge that screws into the crankcase of my Harley - in other words, it can take the heat.

Glad to see you're doing the gauge thing. Let us know how it goes. In fact, do a proper write-up of it, and (1) I can stick it in my FAQ for others to do, and (2) I can do it myself.
 
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