Second question: What do I do with the nipple on the AIR diverter valve? As far as I know my AIR system is operational. Can I leave the nipple exposed or should I put a plug over it? Is their something else I need to do regarding the AIR system?
If your A.I.R. system is operational, note that plugging or disconnecting the vacuum signal line to the diverter valve places the valve in the open position by default (the spring on the diaphragm holds the valve open with no vacuum on it), so air from the pump is injected into the exhaust manifolds at all times; this can result in "popping" from the exhaust pipes on over-run. With the vacuum signal line connected and the valve diaphragm functioning normally, the valve closes on over-run (high vacuum signal), and the air from the pump is diverted through the diverter valve muffler instead of into the exhaust manifolds. If the "popping" bothers you, just leave the diverter valve connected so the system operates normally (my pump is "gutted", so that's not an issue on my car).
See page 6T-2, Figure 4 in the '69 Chassis Service Manual to see how the diverter valve works; with vacuum, it's closed and dumps air through the muffler, and without vacuum, it's open and air goes to the exhaust manifolds.