You are right, Jeff. Inside the DIFFERENTIAL housing is a much better way to put it.
I'll correct that.
There is a CHANCE that I am about to try to put the o-ring housing on the WRONG side of the diff! I haven't really gone that far at this point. It'll only take a second when I get home to look for the air ports in the ARB differential carrier trunnions. I did find an exterior picture of an FJ40 diff and they drilled the ARB airline hole in the same place I did, by the manual, so no rework there.
This thread may very well be for naught until I post a PICTURE of what I've done. There seems to be a dearth of FJ40 ARB installation write-ups out there. (Probably because there isn't much too it.)