I wouldn't by pass the heat exchanger, that engine was designed for closed cooling from the beginning, I don't know for sure it would cool correctly as a raw water engine, you might be creating more problems rather than fixing the one you have. you could bypass it to check the heating problem,, but it wouldn't tell you a whole lot. that engine uses the closed system to prevent electroalysis between the aluminum block and cast iron head, you'll get that in any water(some just worse than others depending on alkalinaty, temp, and mineral content). Stick with the basics, make sure you used the correct pressure cap, check compresion, water flow, and water out pressure( use a gauge like ferm said)
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