Do you know what length the spring was originally?Spring is broken, explains the bypass and cold running temps, you can pick up a spring at ace hardware to replace it.
As the oil gets hot and thinner, the spring and ball compensate and close the crossover through the case halves and direct it through to the cooler ports.
Yes that is the servo to remove, a couple of set screws can be used to plug the oil feed and drain ports, that servo operated a breather butterfly like a throttle body in a sense.