Yes, you need the bigger bell housing if your running a 168 tooth flywheel. You should also be running an 11" clutch with that flywheel. You have to run a starter for the 168 tooth flywheel too. If you run a 153 tooth flywheel you can run the 10-1/2" clutch with the smaller bell housing and starter for the 153 tooth flywheel.
To answer your OP question - yes the larger bellhousing will work fine with the 10.5 clutch. As alluded to above the bellhousing is promarily determoned by the flywheel size. But your 11" bellhousing will do fine with the smaller flywheel. be sure you have the correct starter too.
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