There is nipple on the top of my crankcase just under the cylinder on the right side of the machine. Does any one know what that is or should there be a tube/hose coming out of it?
yep, thats the crankcase/tranny vent, it originally had a hose run up and across, behind the carb, to the left side top frame rail and up under the hood
it can be run straight up and loop over and ty-rap'd to the cross rail the coil mounts on to
This could be the crankcase breather, and yes there should be a flexible rubber hose from the nipple, ending up under the front of the tank. It allows the crankcase to breathe and stops water getting in when you take the bike for a swim.
I run my vent line up and over the frame where the rear shock mounts to and barely tie-wrap it to the frame tube. I like to be able to pull that right on out with a bottom end and over the frame there is maybe 3" lower than the stock configuration (so little risk of it going under in a "dunk") using about 1/3 of the hose AND it's easier to deal with.