Yes, that tube around the back of the block carried water that passed through the original manifold back to the water pump inlet. With your new manifold, I'm assuming there are no provisions for water heat? I'm no cooling system expert, but I think it's important to have a small amount of flow through the thermostat housing, even when the engine is cold. If that area is completely stagnant, then you run the risk of overheating because the thermostat won't be subjected to the hot water and could instead be sitting in a stagnant cold pool. I believe most thermostats have a small bypass hole built into them to allow for just this kind of issue, but I wouldn't completely block off all those path(s) without first confirming that is the case. Eventually heat will make it's way into that area through conduction and eddy currents, but if you don't ensure some flow somewhere prior to the thermostat getting hot enough to open, it may be too late by the time it does.