Having been following the green cotton thread, thought I should see what I have.
I found an almost black oily gunged-up filter that looks as if it is the original one put in six years ago.
Will get a new filter tomorrow because I can't put this one back in, and have think about upgrading to green cotton after,
However, the filter housing is needing a clean-up because it is oily, but I am wondering about a sponge -looking oily lump in one corner.
Can I ignore it and leave it there - I don't know what it is supposed to do - or do I need to do something?

I notice on one of Lenny's pics in the Guide that there is a similar little compartment in his housing, but it appears to be empty

http://i575.photobucket.com/albums/ss192/lennymanwoods/Image2390.jpg

its the filter for the oil breather pipe and will get gunged up with oil standars filters come with a replacement my k and n came with a replacement cleanable sponge you dont want that missing as it will allow oil to blow into the filter housing if theres a pipe at one side of it replace it if not then you dont have a breather pipe into the airbox im sure the diesels dont

Many thanks, Arthur. I do have a breather pipe so have cleaned out the oily mess and have some sponge ready in case the filter I get tomorrow doesn't have a replacement bit.
I seem to learn something new about this car, every day

I certainly didn't have a sponge in mine and no gunk either.

dont think the diesels have them clive just the petrol theres a breather pipe from the top of the rocker cover thatgoes along the front of the engine then down to the airbox and clips in with the foam pad at the other side to catch the oil

Could always purchase a nice little oil catch tank from ebay and fit it instead of this setup.
Then empty the catch tank when full, much cleaner setup

I was going to purchase one but now hear that I don't have a breather to fit one too lol thanks arthur

its part of the emission sysytem somehow you can fit the tank as suggested though theres not much room avoid the breather filters from pipercross etc they just make a mess i just clean mine out yearly and leave it alone knowing these fords ill disconnect it and the bloody car wont start or summat daft lol