MagDrive 500 might be a little small, but it really depends what you pack in the filter. If you stay away from finer filter media that clog fast it'd probably be ok.
One other thing to think about, is how maintenance will be performed. Backflush is good start, although I never found them to work well with sponge media. At the least I'd add a ball valve on the input side before the filter cannister, so you can isolate it and remove it easier. A corresponding one on the output hose is also handy, with both you can isolate the entire filter system at once.
Not quite sure I understand all four valves for the bypass, unless you are trying to avoid having water pass through the pump.
And finally, I believe for CO2 reactors the recommended placement of the input is 1/3rd of the way down from the top. Although personally I always thought putting it on the bottom would be best, but what do I know.