So what exactly is the purpose of the bypass hose?
To drive us bonkers.
Supposedly, it's purpose is to circulate coolant in a closed loop around the block, by-passing the Radiator,when the Thermostat is closed.
That may sound fine, but it will continue to do this when the Thermostat opens !! Circulating Very hot coolant back in to hot coolant,,,,,
As a 'bonus' side effect, with the location of the By-pass on the Pump, they are help bring on the onset of cavitation much soon, while also leading to overheating in itself, also 'aids' the rusting of the cooling jacket bringing on longer term issues,,,,,,
It only took Leyland about 34 years to wake up to this and modify the system, though they only went 1/2 way,,,,,,
The Pump is a Centrifugal type of design. The correct way to close these off (to stop or reduce flow) is to block off the Outlet of the Pump. The standard Thermostat will do this quite well. So, circulation through the block via some kinda By-pass, for these reasons is not needed.
But I hear some say all the Hot coolant will go to the top of the head and go no further (when the Thermostat is closed). Yes, it will go up to the top of the head, right up to and including the Thermostat, which will open the Thermostat but before that happens, it will displace the cooler coolant to the lower parts of the block, which in turn will heat and rise, by which time, the Thermostat will have begun to open,,,,
The by-pass in what ever form is not desirable. I've been blocking mine off for longer than I care to remember and doing nothing else, not even drilling the Thermostat plate (let the Thermostat do it's job !!!), however, as Nick pointed out elsewhere, the Thermostat should include the 'loose wiggly' in it, though these will float up and block that hole it's in when the coolant level gets up to that point when filling from dry.
As for no. 4 cylinder not getting enough coolant flow around it - it does well enough in stock form. Maybe if the engine is really modified AND you like to use all the power it can make very often, then some additional flow maybe needed, however, it's really not wise to start introducing colder flows hapazardly in to already hot flow paths.
The Blocks are quite well designed already in this regards. If you ever have a block on the bench, look in through the water pump opening, there's a really good and well designed taper in the cooling jack in the front of block from the pump right down to No. 4 cylinder, giving even-ish flow throughout the block.
I've written much in many pages on the forum here about the cooling systems in these cars, take it for what you like, but do a search