Battling overheating new 360 build

I hadn't noticed that extra bypass. Yeah, I don't like that, either. Another possibility is a bad thermostat. They are not created equal. The best I've found is Robertshaw brand. I understand for some specific apps, there are some hi flow t-stats sold, you might check them out. My friend, Brian and I had a boil off of about a half dozen different brands. You'd be surprised how different they all were. Some were not very accurately rated temp-wise, others didn't open very far.

Many t-stats are made now with a little 1/8" dia. bypass hole in the t-stat flange(not on the gasket surface, of course). The purpose is to allow trapped air in coolant system to more easily exit the block/heads and be vented so system can be filled with 100% coolant.

I doubt that this is the problem in your case, but I've even seen t-stats installed backwards. The symptoms were overheating at idle but only very, very slowly; and overheating at cruise.