As long as you have oiled the K&N filter correctly, damage would probably be minimal. Doesnt hurt to go back to a paper element - I too have a K&N, usually throw on the OEM paper one while the other is getting cleaned and re-oiled. Being running mine for almost 110K miles - so far, so good. UOA (used oil analysis shows low wear and low silicates, the usually sign of dirt penetration). But that may just be a function of the area that I drive around - as they say, your mileage may vary.
The 8th gen do not have an external inline filter - their filter is inside the gas tank, inside the fuel pump assembly. I dont know what black canister next to a green valve you are looking at - but that sounds like the VSV valve for the EVAP system (under the hood, next to the throttle body and air box).
For a 3-speed auto - in mixed driving, 25-30MPG is about ballpark. Like Dave mentioned - only significant way to bump that up is to run a 4-speed auto (overdrive) or swap in a 5-speed stick. Only other thing you can do is lighten the car, getting lower rolling resistance tires or plump up the existing ones with more air, switching to synthetic motor oil and other fluids can help, as far as engine mods - most will tend to worsen fuel economy, than help - so I would stay away from messing with the engine. Toyota ECMs have a tendancy to work around most mods, given enough time. If your upstream O2 sensor or cat is clogged, that could also affect fuel economy. Though better to check them out before one blindly replace them - they could still working correctly.