The bypass valve on gen V and VI big block chevys is under the remote oil filter adapter. You know, where you would put the oil filter on a car application. There is the center post that the filter spins on where the oil goes back into the block and there is another hole where oil comes in to the filter. This second hole is where the bypass valve is. Its held in place by a circlip.
The two plugs in the block that you mentioned are for factory (cheverolet) oil cooler lines. These should stay pluged for mercruiser applications.
Hope this helps.
Ron rjcardinal@eatel.net