there is only a single nozzle on the grasshopper - one merlin 1D engine. the second, angled off to the side, jet of flame that you see is the low pressure exhaust from the gas generator on that engine, which has then ignited on contact with the oxygen in the air, since it runs fuel rich.
it provides very little in the way of thrust, and is not controllable on the 1D. on the merlin 1C vacuum version, it was directed and used for roll control - it appears that the merlin 1D-VAC directs the turbopump exhaust into the main engine bell to improve ISP, so presumably they plan on using cold gas or draco thrusters for upper stage roll control now.
you're correct that merlin 1D (and all the previous merlin models) use high pressure fuel from the output of the turbopump as the hydraulic fluid for gimbaling the engines - which has the nice advantage of not being able to run out of hydraulic fluid (or at least: you only run out when the engine quits firing).