Where do I start? The tech saw a crack in the exhaust manifold. He blamed it on the Kunkle, ... What a dumb a$$!!!
The Exhaust manifold had a crack, OVER HEATED THE ENGINE (just a guess, but if it runs who cares right)- REPLACED - So the deverter was RESET by the tech at the shop and you found it dose not close all the way - RESET THE ROD TO CLOSE IT ALL THE WAY.
The Exhaust HX has a thermostat probe - RIGHT - and a DIAL INDICATOR TO SET THE TEMP - RIGHT - NOW Turn the key to on (DO NOT START - JUST ON ) and turn the TEMP DIAL till you here a "click" if you do not here a "click" the Exhaust manifold deverter is not working because that dial theromstat is out and it controls the deverter. If you have to replace it , it is a complete unit with prob.
Next the Exhaust HX would have water running out of the Exhaust pipes if it had a crack in it at all, so no water no problum, another way to check it is to pressure test with air, DISCONNECT THE WATER LINES AND RECONNECT WITH AIR ON ONE AND PLUG THE OTHER - IF CRACKED YOU WILL HERE THE LEAK. MOST Exhaust HX are SS throughout. If you find a leak here do not read on.
Now lets go to your pressure regulator, you said it is supposed to zero after start which means that it is set up like a pressure washer , your by-pass is not working right, it is stuck and holding the pressure in the system, just below the knob you turn to set the pressure is a ball bearing and a spring check it for debri, if that dose not fix it replce the whole thing coast $50 at envirospec.com.
Good luck, Greg