That would work, but you would need to use a flexible hose on both sides of the valve. In that case, it would probably make the most sense to build the whole thing out of hose, which is not a bad idea. You could anchor the ball valves to the cabinet to keep everything in place.
Here is another pic of my setup. As you can see, it is a pretty tight fit top to bottom. If you had to go PVC to hose to ball valve to hose it probably wouldn't fit. The whole manifold is 28" high as is.
Regarding control, i think the PVC valves work, although I have left them wide open for the heater and the CO2, and closed for the bypass. This seems to be about right flow for the reactor and the heater is happy too. I just use the valves to turn the flow through the reactor off and open the bypass when I start the filter after a water change. That way it just blasts the bubbles through and doesn't add extra gas to the reactor. Just have to remember to open the CO2 valve and close the bypass after it runs for a couple minutes.