thats a trans cooler line. i would find something to plug the hose, and something to fit over the nipple after disconnecting . even a baggie with a rubber band. fluid will drain, but not a flood
you say trans fluid leaking. are you filling at the auto trans dipstick tube? there is no connection between power steering and auto trans. that o ring is left over from someone working on your rig. it didn't pop out of the gearbox
if you like your old gear ratio you can just swap the pumpkins. the diff is the same one used in the pick ups. differences are in the brakes and wheel bearings