Re: brake proportioning valve.
The O ring is in the differential valve part of the combination/proportioning valve. Removing it disables the proportioning valve, just like you didn't have one.
Master cylinders designed for drum brakes have a check valve in the outlet. Unscrew the brake line at the MC - look up inside the outlet. If you see a brass object in there, use a sheet metal screw to remove it.
But - that check valve isn't your trouble as you described. If it's still in there it will cause that end to lock up and stay locked.
It's purpose is to keep a slight pressure in the brake line for the drum's wheel cylinders. If that pressure is in the disc's line, the the discs stay applied, can't release. Remember, drum type shoes are pulled away from the drums with springs. Disc pads are pushed back only by the slight runout of the discs.
Unfortunately many rebuilders don't understand the purpose of the check valve. They often remove them on all rebuilds. Then if you use that MC with drum brakes, it acts like you cannot get all the air out.