Yep, O2-sensor bypass is to prevent FI light. However, that light only goes on if O2-sensor has completely failed or has been removed.
A failing O2-sensor that's sending erroneous data on other hand, is difficult to detect and troubleshoot. It will however, throw off AFR and can cause stalling. Disconnecting it and driving around is simple troubleshooting procedure. If bike runs better, O2-sensor is at fault.