I don't know the technical aspects of what exactly the noise is, but something to the effect that the ECU pulls timing, which causes a bit of fuel dump. Think about it, basically you are keeping your foot planted while it does the shifting. There is some speculation that if there was no cat you might shoot flames, ala WRX style, but no proof of that ive seen so far.
As far as the bypass valve, pretty much every boosted VAG car uses a recirculating system, ie; diverter valve, so I would assume yes, but you aren't dumping boost...well you are but that's not what you are hearing.
Well shit...posted while I was typing...lol...what he said about te bypass.
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