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If the gauge is right, the expansion tank needs to be drained.

With that amount of water, it should've been piped P/S. I would try closing the bypass. What speed is the circulator on? Not sure if that's correct either.

Can you get a photo from farther back? Trying to put the pieces together like a puzzle is difficult. even with the diagrams I can get that you are having 2 problems.

1. Not enough heat
2. Relief valve releasing water/Pressure in boiler too high

Number 2 may be causing the other problem.

you need to be sure that the expansion tank has enough air in it. Air in the expansion tank is the cushion for when the water expands as it gets hotter. If there is not enough air in the tank to compress, as the water in the system expands, the pressure will get too high and the relief valve will release water on the the floor.

To get air in the expansion tank you can open a boiler drain in the system somewhere (you already have a hose on it) and let water out of the boiler. This will lower the boiler pressure to zero on the gauge. When that happens you can open the drain valve on the expansion tank just a little and you will hear Air gurgle into the tank.   Open it just enough to get the air to go in as the water leaves the boiler at the bottom drain valve. 

This may take 10 minutes or more.  When you hear the sound of the air gurgling into the tank change, that will indicate that the tank is full of air and you can quickly close both valves. You want to pay attention to make sure you do not let too much air into the tank, because the air will start to get into the system pipes and that air will need to be removed later.  

Once you have the Tank filled with air and the valves closed, you can open the fill valve and get the boiler pressure up to 12 PSI.  You do not need any more than 12 PSI in your home.  The tank will then start to fill with water again and compress the full tank of air to 12 PSI. That means the water in the tank will be about ⅔ full and ⅓  of compressed air at 12 PSI.  That is where you want  to start the boiler with cold water.  Now you can turn on the burner and heat the water in the system. If the radiators only get hot across the bottom, then there is air in them and you will need to vent the radiators while adding water to keep the  boiler pressure to 12 PSI. Once the system is operating with an expansion tank properly filled with air, the pressure should not get above 20 PSI and you will have a working heating system.    If the house does not get warm enough with 160° water, then you can increase the boiler limit control to let the water get to 180°. If that is still not enough, then you can set the limit to 195°.    But I doubt that you will need to do that.    

Hello,

I see you got some advice from Hot Rod! He is an expert when it comes to hydronic heating. I had the pleasure of attending a training with him years ago in MT. I now live and work in Jackson doing all types of mechanical, electrical, and plumbing installs. We specialize in design and installation of conventional and geothermal based heating systems. Your welcome to email me directly to talk about options for your project. I am also happy to have you come to my office if you would like to go over plans and options. vlovejoy@energy-1.net