That black plastic pipe in the crankcase is called the "oil defense pipe":
![[Linked Image]](https://www.outdoorking-forum.com.au/forum/uploads/usergals/2014/01/full-2772-14517-honda_gxv120_140_oil_defence_pipe.png)
Its purpose is to keep oil slung off by the rotating parts, from going into the breather drain hole (which is after the PCV valve, so it would end up going through the rubber breather hose into the air cleaner). Don't put it on facing the wrong way, or it will pick up oil instead of draining it.
I tend to bump that pipe occasionally, and actually knocked one off once, but it clipped right back on, undamaged. It is soft plastic.
I haven't used a gasket kit, and I'm not aware of what the O rings are for either.
Did you put the connecting rod on the right way around (marks for matching the cap to the rod should be visible, facing toward the crankcase cover opening)? And yes, the arrow on the piston top faces the pushrod cavity.
Are you sure you've seated the circlips properly? They'll come out and do evil things to the bore if you haven't.
I don't recall the second ring having a Y on top, I thought I recalled it had a T like the top ring. The T means top of the ring, not top ring. You can identify the second ring if you look at it carefully, it is tapered to act as an oil scraper:
![[Linked Image]](https://www.outdoorking-forum.com.au/forum/uploads/usergals/2014/01/full-2772-14518-honda_gxv120_piston_rings.jpg)