Don't send US passport
I recently applied for the PIO card at NY Consulate.
You don't need to send in the original US passport, but a notarised copy is sufficient.
I sent the following -
1) Completed PIO card application(In duplicate)+ 2 passport photos
2) Money Order for $310/- as fee
3) Money order for $15/- for (Return express mail)
4) Original Indian Passport
5) Notarised copy of Current Indian Passport
6) Notarised Copy of US Passport
7) For my kid born in USA I also included Notarised copies of parent's
passports, Birth certificate and Indian visas for proof of travel.
Application received at Consulate- 9/15/05
PIO Cards received for all of us by US express mail - 9/26/05

Validity of PIO Cards is as per the US passport i.e. 15 years