Originally Posted by c280nz

i would presume it is either a 1 way valve so all the oil doesnt drain out, or as it has the oil to water cooler like you say it would be a thermostat so its not used until the oil is hot enough,
i have a filter housing without the water/oil cooler attached that is smaller, that sort of thing you might be able to use.
would you like picture of that to see if it could possibly work to give you the additional room, or are u just after a definate answer to what the valve is for?

edit, on this parts page it says it is a by-pass valve
http://www.detali.ru/cat/oem_mb2.asp?TP=1&F=202028&M=104%2E941&GA=722%2E328722%2E424722%2E604722%2E605722%2E629&GM=717%2E441&CT=M&cat=520&SID=18&SGR=045&SGN=02