The hole doesn't go that far in before it heads downward. It drops into the oil pan after a short trip (an inch or so sounds right). Check this diagram on how the system is supposed to work.
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The hose keeps blowing off? How much air is blowing out at the hose attaching to the cylinder block? It shouldn't be blowing off, have you tried a clamp to hold it down?
Are you certain that oil is leaking out the cap, and not the hose when it blows off? If it is the cap, how certain are you that the replacement gasket is on properly? Oil shouldn't be coming out, especially with a new gasket.
When the engine is idling there shouldn't be much in terms of flow coming out that pipe. If there is, you've got other issues.
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If you're not driving it "like its stolen," are you really driving?
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