I've had the cotter key hole above a castle nut like that before, I just bend the cotter key down on both sides with a punch until it is in the gaps to prevent it from turning. But the fact the boot is compressed so much makes me wonder if there is a sleeve or something missing to prevent the tapered stud from fitting so far into the knuckle.
So far as that sleeve in the upper track bar mount goes, it's not factory so no telling why it's there, perhaps the previous owner had to reduce the hole size for an undersized track bar mounting stud. If your new track bar mounting bolt fits the original track bar mounting bolt hole size, then yes that sleeve needs to come out.
I can tell you this that if you are not also installing a dropped track bar mount there, that you need to replace that dropped Pitman arm with the non-dropped factory Pitman arm. With a stock upper track bar mount as is in your second photo, that dropped Pitman arm you have installed is causing bump steer. Get rid of it, replace it with the factory non-dropped Pitman arm.