Tim, thank you for questioning buddy, I don't mind at all. That's how I learn things.
You are right that if set up for full flow, the lines would need to be larger than the 1/4" ones.
In this case, the bypass dowel is flush, so the engine oil galley is open.
So basically in my situation, the filter gets only a portion flowing through and is mostly for looks.
I decided to keep it this way because I felt that once the dowel was pushed in, it was final.
My intent is to still change the oil on schedule. The truck won't be a daily driver.
Deve and Dave, when I first got the engine it had no filter, only a metal 1/2" line bridging from port to port.
I think they did that, just to be safe in case some goober like me came along and pushed in the dowel over time, not knowing what the results would be.
I bought the filter off Ebay because I thought it was a cool addition to the engine, correct to the time period.
As mentioned, the Casting Numbers from the Head and Block led me to the Engine Date.
The engine was a replacement, found in a '58 parts truck I bought from a work buddy for $300.
When I initially tore the engine down, everything measured close to factory specs.
The cylinders didn't even have a ridge and I only had to hone them.
The engine is a true 261 all the way to the carb and cam.