That is the overboost protection switchover valve, and if it is bad, yes, bypassing will give you better performance. However, cutting the line from the turbo to the wastegate servo will, too -- at the expense of engine life. It's there to prevent engine damage from overboosting if the wastegate control fails. One common mode of failure at the switchover valve is to leak, venting off the pressure signal to the IP, so that it doesn't provide the extra fuel noramlly injected when the boost goes up.

Make sure the lines are clear and that the overboost protection switchover valve is working (holds pressure unless energized) and you will be getting all the performance you need.

Peter

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1972 220D ?? miles
1988 300E 200,012
1987 300D Turbo killed 9/25/07, 275,000 miles
1985 Volvo 740 GLE Turobodiesel 218,000
1972 280 SE 4.5 165, 000 - It runs!