I think it's an exhaust problem.. any help?

[daVinci]

recently my 240sx has been making a popping sound sometimes when I switch gears, right as I start giving it gas. The sound comes from the rear of the car, and I had no idea what it could be until I noticed a slight exhaust smell in the cabin. Sure enough, I found a tiny rust hole in the muffler. Could the popping sound be gas escaping from the hole? It seems to make sense to me, but I'm no expert by any means. I only ask because I'm juggling with the idea of getting a new muffler or just patching the hole. If it'll fix the popping noise then I would be more than happy to drop some money on a new muffler. What do ya'll think? Am I on the right track or completely wrong?

[S14 Wannabe]

Yes and depending on you financial status either option you listed will work.