I may have missed it in here, but in case it didn't get answered. That part you have the green arrow pointing to, is that where your mystery hose goes to? Because I believe the other end of that goes to the underside of the air cleaner, it's just an air intake.

A TH400 originally called for Dexron II fluid but you can't buy that anymore. The Dexron III is fine, like Oldskool said. That's what I run in mine.