Thanks. I share my observations in case someone finds something helpful out of them. If there's any detail I can share that helps others, please let me know.
I answer to my own question -
Yes. The valve's internal function is as drawn. I managed to disassemble the faulty valve with pipe cutter. There's a diaphragm, which could be removed with separate center pin. The plastic "seat" of the rubber valve had crack in it. Some superglue+baking soda fixed it. Finished with some sanding and vacuum test before case went back together with hot glue. Leak test under water with pressure. This was a tedious job and took about an hour. The result was not perfect but it worked on the system so far. Ugly it is, but fortunately it is hidden inside dash.
Picture 1: Disassembled valve. Rubber holding center pin still in place because I only figured out later that it can be removed.
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Picture 2: Valves in place. #1 (upper) is the repaired one.
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I found another problem. Defrost-Bleed vacuum actuator (right over throttle pedal) was leaking when vacuum applied on shaft side chamber (Defrost mode). This seems to be a common problem with actuators. Therefore blower did not come on at all on LP/HI DEF since there was insufficient vacuum for Master Switch. On the bench test the actuator rod seal seems to seal itself when extended to full travel but this was not achieved when on place.
Picture 3: Fixed actuator. added zip-tie to aid rubber sealing. washers to bring the unit down allowing arm extend fully and seal the chamber. No more vacuum leaks.
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Bonus Picture 4: Familiar view for all who have fixed ATC. I had to connect hand vacuum pump to vacuum tank during testing. Engine cannot be turned on since the garage door must stay closed because there's -20 °C / -4 F temperature outside. In this picture You can see two white wires which are used as a jumper on Master Switch leads. This is an emergency option to force blower on in case some problems occur on vacuum system. You see, defrost and heat are absolutely necessary where I live.
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