Yeah, the stock setup diverts a only a portion of oil to the cooler and it's pressure based, not temp.
Yes, a return to the pan is the most common (as high as possible, but so high that you have the hose go horizontal or worse, dip down). Now keep in mind that you want to make sure the oil isn't going to get thrown at the drain as the counterweights and rod ends swing by... so you want to line the return up with a main bearing. EDIT: Of course, drilling out the stock drain location is always ideal; It's much higher than the oil level.
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