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From the quick flash of the video camera You did not need to do the set screw and plug on the number one Passage. You could have gone through that water jacket hole tap the hole and put a plug in it and still been able to use that block as originally intended.
The plugs at the end of The Galley at the front cover are not to separate water from the oil those are to keep oil from leaking out the end of the galley into the front cover area.
I would really like to see more of your video on the third main passage being drilled out it may not be as bad as you think.
Do me a favor and slow the movement of the camera so that I can get a better view of things.