The extra connector on the fuel pump is a breather tube and would have only hung down from the pump about 8-10 inches. It is so the oil that leaks through when the inner seal on the pump fails will have somewhere to go. You should have two larger connectors, one is in, the other out, and one a bit smaller that goes to the return line from the tank. I'll go take a look at my spare and see if I can tell you which is which for sure.

Sounds like you might want to double check your valve timing. Spitting air/fuel back through the carb makes me lean towards that as a problem. Could be the spark timing though, and the disti isn't super easy to get in right the first time around. Check for spark, make sure you plug any open vac lines or ports.