Tony the original pump did a similar thing, it was pretty dirty when I took it apart, had the layer of brown gunk on every surface. Also the rollers...
The restriction of a short section of smaller bore pipe will not impact on the performance of the fuel system if you are increasing the fuel line ID....
Answers;
1. It would be best to have a delay on the return line changeover to diesel to minimise the amount of veggie oil mixing in the diesel tank....