The split washer spacer was only used with the factory issue cam sprocket, every replacement timing set I have ever seen has the spacer built into the cam sprocket, eliminating the need for the spacer. The OE sprocket was flat on the backside, the replacement should have a step that fits inside the cam thrust plate bore, so you discard the split spacer. Using the spacer with a stepped sprocket with prevent the timing chain from being properly aligned, damage the timing chain, and quite possibly cause the fuel pump eccentric to contact the inside of the timing cover. All bad things. If you actually are in need of one of these spacers, for use with a factory timing gear, you will likely need to obtain one from an untouched original FE core engine. I have always tossed them in the trash.
As for the oil passage in question, yes, it needs to be plugged.
