I have a closed loop recirculating system. Current pump is dead. Do I have to install the Watts pump where the current pump is?

The pump should always be installed on the hot water out line from the water heater as per the instructions. Installing the pump at that location is the best way to ensure the pump recirculates the water efficiently.

Yes you CAN, just install the pump and don't use the valve.

Normally you install the pump on the hot water side of the water heater... however I think you can put it anywhere along the line on the hot water supply line.