ya - it's supposed to be a breather and the idea is to burn the oil fumes.
there are lots of options to vent the crankcase:
http://www.cip1.ca/SearchResults.asp?Search=breather&Search1=Search
i personally vented my heads and my oil filler tube to keep valve cover gaskets in check.
may folks vent to the carbs. it's easy to do, but does make a mess if you have too much stuff to venting.
hope that helps.
oh and your comment on the rev... it's the cam / springs that are limiting you. these motors can go upwards of 6500rmp on a balanced, cam'd motor. of course it gets crazier with dual valve springs, etc.
what is happening is your stock motor is running out of breath. :)