couple of points
The ball cock looks rather old and corroded. If you have any doubts about it shutting off correctly, replace it with a new one.
the pipe layout doesn't look wrong , except that the vent pipe (the one overhanging the F&E tank) doesn't look high enough.
If you can cut it and join a bit more on, so the bend is higher above the tank, it will mean that greater pressure is needed to make the pumping-over happen.
You can also adjust the ball valve so that the water level is only a couple of inches above the F&E pipe exit in the bottom. This will also help.
The magnetic point you indicate is pretty well exactly where we would expect a blockage to form, it is very common.
As you have found signs of magnetic blockage, yes, add the X400 and stir it in. Lower the water level in the F&E first, by baling out into a bucket and adjusting the ball valve arm, to reduce the chance of it being wasted by running out of the overflow. Bale out any sludge in the tank, and sponge it clean.
Tie up the ball valve and turn the pump on for 10 mins with the boiler on cold. If it continues to pump over, the circulation will draw the chemical down into the system so it can do its work.
Then turn the system off and vent your radiators. They will probably have gas in them. this will also help to draw the mixture of water and chemical down from the F&E into the system.
Then go and have a look at the F&E, and if the water level has dropped below the level of the exit pipe at the bottom, untie the ball valve and let the water fill to a couple of inches above it, then bleed the rads again, then run the pump for another 10 mins and have a look at the water level.
Because you have lowered the level of water in the F&E, there is a chance it will have stoped pumping over. If not, find the pump and turn it to speed "1" or "low" and see if that stops the pumping over. Stopping the water level in the F&E rising to the overflow will stop your chemical being wasted.
By now, if the chemical is working, you should see the water going black. This is good, it is the black sediment being softened and washed away by the circulating water.
Untie the ball valve and let the system run on low pump sped for a day. If it has now stopped pumping over, increase the pump speed and let the system run normally for a week or two. The chemical will continue to soften the old sediment. Bleed the radiators whenever they seem cold on top.
You are now looking for a drain cock. it might look like
If you can find a drain valve, you can draw off a bucket of water to pull the X400 down into the system before you start the pump. This is the preferred method.
if you can't find one, you will have to drain the syst (with the boiler OFF!) by turning off the valves at both ends of a downstairs rad, loosening the rad valves so water dribbles out; emptying the rad, then putting a hose on the rad valve. Don't do this over a white carpet.
You can then remove the old rad valve and replace it with one with a drain-off like
After a couple of weeks of cleaning, you will have to drain out all the black water and sediment; rinse, and refill with Sentinel X100 corrosion inhibitor to reduce future corrosion.
I think we had better let you start a new thread if you have questions about draining or changing rad valves.
Are you in a position to spend an additional £100 on a Magnaclean device to trap circulating sediment? It is a fairly easy DIY plumbing job... as plumbing jobs go, and well worth doing if you have a sediment problem.
I am not a plumber, just a sensible householder
p.s. with your pipe layout, I can't see how any air in the pipes could rise out. Can you see a pipe going up, with a vent or air valve on it? Might be above the pump. Has the pump recently been replaced? It seems to be pumping downwards. the upper pump valve is obviously leaking and needs to be cleaned-up and re-fixed when the sytem is drained. 
