Most put 2 or 3 holes 3/16 dia. Kind of a trial and error depending on how much water temp you get at idle and water temp you boat in. Allows some water to go through the engine all the time. Bypass will dump in to the exhaust. CP Performace or some other sites show plumbing. You have to have water out the exhaust at all times. Some crossovers are not set up for bypass. Also make sure you at least check water pressure during set up if you do not have a water pressure gauge on the dash.

With the amount of condenation you are describing I can not understate the use of a PCV valve. It will get rid of condensation in valve covers you are describing in my opinion if you do nothing else. Just my .02

my crossover does have a bypass which i just installed, i put a 160 thermostat with 3 1/8 holes, and temp got to like 180, did that before i saw the thread, i see alot of people go with a 142 t-stat with hole, seems that it would stay too cold, maybe not? Do i still need to worry about water pressure even though i put the bypass to the t-stat so it can go to the headers? before there was not thermostat with no bypass, my pressure should still be the same. shouldnt it?

most likely lack of engine temp to burn off the condensation.
if your exhause has a gasket between the riser and the tail-pipe, check that gasket, as they can leak down through your exhaust valve, but then you'd see water in the pan, not just on the top end.
good luck