If eliminating the oil to water exchanger, you should not run the copper hose like that. That allows coolant to bypass the radiator under all conditions. The right way to eliminate the oil to water exchanger is to plug both lines or to use a non-turbo (no exchanger) bypass hose and plug the bottom.
How streetable is this set up?
This setup is very streetable. It was in my mk1 cabriolet and used as a daily driver for a summer. Members on this board (burn_your_money and Dr. Diesel) have been in my car with this motor in it.