first-"the nipple goes to pits style muffler"-no.
that line goes to the engine.

the other nipple goes to the tank pick up line with the clunk.

the nipple on the pits style muffler goes to the pressure line in the tank(the one that is near the top of the tank).
this makes for a 2 line system the fuel will overflow through the pits style muffler when the tank is full.

if you want a separate overflow use some small brass tubing and let it hang out of the cowl so you can disconnect it when fueling, or use a "T" in the muffler pressure line you can plug after fueling if your worried about fuel in your muffler,but its really no big deal as long as your not pumping huge quantities of fuel into the muffler,the fuel will just run out the exhaust pipe.
if you allow exhaust gasses and oil to get into the EZ Fueler then it will clog and malfunction,its for fueling not as a vent or for the muffler pressure line.

the probe in the fuel filler will prevent fuel from flooding the carb by blocking fuel when inserted durring fueling.

as for not using a EZ Fueler I think they work great I have several that have been trouble free for many years, as long as you keep them clean and free of exess goo,mainly old fuel,which is easaly cleaned with some denatured alcohol they work well,if your slopy and leave fuel in your lines then they get beat and will get sticky and leak.