You don't want to block off that intire part, just the small fittings coming off it that go to the throttle. The 1/2"(size?) pipe is the thermostat bypass and you still want that - although that is just the conclusion I came to with mine.

I just went through the same problems with mine, I got the 1/4" fittings brazed shut. One comes off that little cast elbow and the other one is where it re-enters the cool water flow on that straight pipe under the manifold. You can just bypass the one at the back of the manifold and run it straight into the turbo water feed line on the back of the head.

As for your leak, take it apart and if you're sure that it's the solid part leaking then either find another or get it sealed by the person brazing up for pipes. You might just find a bit of corrosion on the fittings that can be taken off and I can't say enough for getting exactly the right size hose and clamps. Mine was leaking because I'd used clamps that were too large and when they crimped down on it they pinched the house in a funny way making it easier for the water to get out.