The oil goes back down the tube, presumably through the reed valve?
Yes, the oil goes back through the drain hole on the crankcase breather valve.
So, basically, your bike looks like this. Right?
Tiny K&N filter sitting on top of the stock breather valve.
A lot of people do this
just for the look.
'Cause it looks trick.
It costs very little.
It's easy to do.
Somehow, some people believe "removing emission control stuff = performance gain".
Well,
you don't gain anything by doing this mod.
In fact, you loose a bit of performance, and, what you'll get is the possibility of oil on the rear tire.
The best solution for your situation is to return to the stock set up.
You will need the stock oil separator box, stock hose(s)( from the crankcase breather to the separator box, from the separator box to air cleaner box), which are may or may not be easy to come by.
(If your bike came with the stock parts, put them back on.)
The second best is, to get oil catch tank (you can either buy, or build your own) mounted as high and far back as possible, run the hose back to the air cleaner box (or, mount the K&N filter on the catch tank.)
I also suggest to forget about what you read about race / track bike set up.
Unless, of course, you actually race / track your monster.
Simply put, you can not have the same set up as used on race / track prepped superbike, on Monster.
"Corsa box" on race set up superbike
Where do you have the space for this huge box on Monster's tail section?
Stock separator box on 05 S4R : really small, compare to the size of the box in the photo above
Stock separator box is mounted here (on S*R bikes)
Notice separator box has two hose mounts?
One connects to crankcase breather valve (1), another one goes to air cleaner box(2).
This is hose(2)
Goes into the air cleaner box
Make sure the hole in the air cleaner box is plugged. If the hose is still attached to the air box, it should be closed (plugged) at the end of the hose.
Get some vinyl tubing,
run the hose all the way to the tail section, mount the oil catch tank.