http://shbox.com/1/diverters.jpg
See upper left picture.

The elbow going up from the header appears to have an exhaust leak right at the fitting point.
How should I go about fixing this? Do i need to replace the pipe? Could this be why I failed emissions?

 

If you have a leak in the metal tube between the exhaust manifold and the black check valve, it could have affected emissions. Under some flow conditions, the exhaust gas will pull air in through the leak, and dilute the exhaust. That fools the O2 sensor into thinking its running lean, and the PCM adds fuel to that bank of the engine, causing it to run excessively rich.

You need to find a way to temporarily plug the leak, until you can get a replacement pipe.