Its an exhaust bushing that is supposed to be in there. The copper ring lets the pipe wear on it, instead of wearing out the cylinder. My 500 likes to loosen the subframe bolts. The allens that are close to the swing arm. Many have a crank out of balance, including mine. Other things to check are the kick starter rubbing the pipe, brake pedal on case, exhaust springs laying on the pipe, head stay, radiator mounts, rubber bushing between pipe and silencer. (It goes through the sub-frame.
You are probably on the right track with the copper washer and definately get new o-rings. Any leakage there is like drilling a hole in the side of the pipe. A good look at the pipe where it goes into the head will tell you what it is doing. Any leak will show up black and wear will be polished clean.