I have a similar setup with a Suprima except my bypass is a heated towel rail. It works exactly like your's does and I see no reason to question it as it heats the cylinder and central heating just as I would expect. My boiler is also in the same location as the cylinder so I expect the short flow/return would cause the short cycling of the boiler as it cannot loose heat that quickly to the cylinder coil.
Works well for me anyway!
Works well for me anyway!