No, the water does not need to be hot to flow. It just needs adequate pressure (pump or city water), and unrestricted piping.
Is your bypass a two-valve or a single valve? The single ones have the check valve as Gene describes above. If you the check valve, it may just have some mineral buildup or other blockage preventing it from opening. The only way to do this is to remove the valve. Be sure to clean the threads and use fresh teflon plumber's tape when reinstalling it.
It also needs enough pressure to over come the spring in the check valve so your pump has to be in decent working order and your battery well charged up.
If you have the two-valve bypass, then it is probable that one or both valves are not fully flipped. They can be a bit stiff, and since they only get switched twice a year, they never really "loosen" up. If they are stopped somewhere in between, they will restrict flow.
In the Files area there is a write up about hot water bypass systems with diagrams and photos. If you haven't already looked at it, you may find it will answer most questions about them. http://www.sunlineclub.com/forums/do...do=file&id=423
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