1) it's the preheater hose and it's not necessary to operate your vehicle. it's used during warmup. there is a flap near the air filter that switches it over. during cold weather, the flap shuts off cold air from the outside and takes in air from near the exhaust manifold which is hot. when it has sufficiently warmed up, the flap moves over. it's an emissions thing, and also helps to warm up the vehicle quicker.

2) yes, you can drive without it. in fact, many people force the flap into the position that ALWAYS pulls air in from the outside, but some places will fail you for inspection if the preheat hose is not properly mounted or not intact. i have no idea where to get a replacement one. perhaps home depot would have something suitable.

3) your check engine light would not come on as a result of this. if you have OBD (onboard diagnostics) then you shoudl follow the procedure outlined in the faq (drop the menu down on top that says Features) and retrieve the OBD codes and find out what is the real problem.
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Kenric Tam
1990 Volvo 740 base sedan (B230F)
My Volvo 'Project'