Re: what is the pee hole?
That's a great outboard, but it doesn't have a telltale (pee hole) like the later models. About halfway down the leg, there is a hole or holes, where a spray of water and exhaust should appear when the engine's running. Yours does not have a thermostat, so whenever the engine is running, you should see water and exhaust coming out there.
As for the muffs and the garden hose, they used to make one that fits your outboard, but the ones sold today won't work. Instead, you need to immerse the leg in a barrel of water, while mounted on the transom or a stand, deep enough to cover the lower unit about six inches above the horizontal anti-ventilation plate above the prop. Water must be above the water pump level, since these outboards will not suck water from lower than that.