The thermostate blocks water from going through the radiator, when cold. But when the thermostate is closed, the pump still circulates water though the motor via the bypass hose/port. In some motors (4A-GE) there is a plate on the back of the thermostate that also blocks the bypass a bit when the thermostate is open.
Question: do I need this bypass? If I don't it makes my 20valve rwd conversion easier. The heater pipe works as a bypass, but thats not always on. If I have no bypass, will the motor get hot spots and die?