On top of the water pump housing there should be a o-ring or rubber sleeve. this is a water slinger. At low speed water will climb the shaft, the slinger prevents this as this is what rust/seizes driveshaft spline into crankshafts
Pretty sure that is a vent. Only way water would come out is if it climbing driveshaft or gasket not sealing. This would also happen if slinger is missing or too deep in barrel
Thats a water cooled fuel pump...came from factory that way to help prevent vapor lock. The 3rd line is water from exhaust plate, not pulse. Top fitting is water out to "p" indicator.
This is the kit you would use to rebuild your old pump as oil mixed in pump where new kit injects into fuel line like newer engines. Many engines damaged due to wrong kit installed as pump has to have the holes in diaphragm to mix
I use Mystik JT-4 from O'Reilly's in all my customers. Right up there with OEM oils.
https://www.oreillyauto.com/detail/c/jt-4/mystik-jt-4-1-quart-marine-gear-oil/mys1/jt4gearlube