there is always some amount of vapor being created inside of an engine. Anybody on this board can remove the oil cap from their warm engine and notice a white (think of steam) oily smelling vapor being emitted from the valve covers/crankcase. Its just a byproduct of high temperatures, oil, and environmental humidity. Its hard to tell in the pic, but it looks like the breather just has an open hole in the top(or is that a sticker or something), and I can't tell what you have on the pass. side valve cover. You need to have a breather on one side, and a pcv valve on the other. The idea is to have a ventilated crankcase that vents all oily vapor back into the engine through the intake/carb, rather than into the underhood area/passenger compartment. If you already have a properly functioning pcv valve on one side, and the proper breather on the other, then you may have further problems. The puffs from the tailpipe/s are likely valve seals or loose valve guides that allow a small amount of oil to drain into the cylinder after the engine has been sitting. Or the carb could be leaking down.
Why is your heater not hooked up? Still running the autolite 2 barrel carb? It looks like the distributor is a few teeth off just by looking at the vacuum housing, what is the timing set at? You've gotta do something about those plug wires too.
