The bypassed heater system turned out to be the only problem. Once the foreign hose that was connecting the two heads together was removed and the two hoses to/from the heating system were connected correctly, everything works great! No leaking heat exchanger.

Thanks again to mercmad6.3 for that brilliant deduction. I was ready to tear out the mono valve and aux. water pump. I would never have occurred to me to look for such a simple solution.

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2000 Mercedes S500
1990 Mercedes 560SEL
1970 Triumph Spitfire