From what I could see on the Mocal diagram, your thermostat is plumbed incorrectly. As you speculate, the return from the cooler should be connected to the front port (cooler side) of the thermostat, not looped around to the engine side.
Here's a diagram of the thermostat when in operation:
If you connect the return line to the engine side of the thermostat, then, when the thermostat is closed, the
cold oil will circulate up to the cooler and be stopped back at the thermostat. The possibility then arises that high, cold oil pressure, could damage the cooler.
Look at the left side diagram and imagine the cold oil entering the thermostat at the top, left port, exiting through the bottom left port, flowing up to the cooler and returning to the upper right port where it stops. Not only will you build pressure in the cooler, but the flow through the cooler will be reversed as well, something you may not wish to happen.