Hi conkerpow, just read this thread for the first time.
You certainly need a new vacuum advance unit as no, that hole shouldn't be there . You could seal it with a dab of silicone but the chances are that the diaphram inside is poor or dead anyway. Vacuum advance is designed to alter the timing under load true, but on the Panda it gives you about ten degrees at idle too, try disconnecting the pipe when it's all fixed, you'll find the engine revs drop dramatically and probably stall. Your hole could also allow air into the carb via the vacuum pipe allowing it to run week.
Can I confirm a couple of things that others have mentioned.
In the UK all 4x4's have electronic ign. not points, unless they are MK1's with the ohv engine. Could you post a pic of your engine and distributor so that we can be sure of what we are dealing with?
Also, points need to be in good condition, cleaning them up is fine as a 'get you home' measure but, as Alik says should be replaced asap along with the condenser. May as well start off ownership with a new set of plugs and leads if you can run to it too.
Points on a FIRE engine can be set with the engine running using a dwell meter, this is preferable to setting with feeler gauges as it allows for wear in other parts of the distributor (shaft, baseplate, etc). A multimeter that can do dwell is well worth buying for this as it's not too expensive.
Thanks VmanC
Here is a photo of the distributor