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Electrically it'll be fine but it's a bit too big, at 13.5x9.5mm it won't fit in the available space.

Joe,
Did you get this sorted? I have a similar problem. Mine is reading 16.3 C in a room that is right around 20.0. When first powered up it reads closer to 20 but then drifts down. I'm guessing it is averaging against a value in memory using data from the back-up temp sensor. I have double checked the soldering around the TC75 and it looks good. Tony suggested that the LM75 should have all 3 address pins at ground so pins 1,2 = less than 5V depending on data - 3 not used 4,5,6,7- 0V 8 - 5v. Mine checks out, except that my 1,2, clock and data seem pegged at 5 V.

Yours is the only case I've known where the reading<reality. The starting value is 20 degrees C and the averaging will match the sensor reading within about a minute from powerup. You have a faulty sensor or connection to it, but you'll need to determine which it's reading from. Try warming the LM75 first then the DHT11 to see which is being used.