Re: BBC water bypass line
The bypass hose takes hot water back into the pump & mixes it with the cooled water from the radiator which is used to cool the engine. This will cause the car to run hotter, when you are at the limits of the radiator capacity, as you have proven.
If you had sufficient cooling capacity it would not make a difference as the stat would be trying to raise the temp, whereas your car needs all the cooling it can get & is already running above the stat setting.
The reason for the bypass is to allow circulation in the engine when the stat is closed.
You can always block the bypass & run the stat with two or more 1/4" drilled holes in it. The car will take slightly longer to warm up & may run slightly below the stat setting in very cold weather but at least all the water is now flowing through the radiator. Also allow the car to warm up slightly before exposing it to high RPM as you are essentially nearly blocking all of the water pumps flow.
You can also get a small freeze plug, drill a hole in it & place it in the bypass line instead.