I think the idea of having two different sized pipes with some spray foam or the like in between is a pretty good idea needs a bit of a look. To insulate the box why not just build a shield with a bit os stainless plate or the like? I put one on the exhaust of me XH to stop the throttle cable melting. Yeah it was melting happened 3 time when I first bought the old girl. But after putting on the exhaust shield the whole under bonnet temp dropped a little. Just a thought anyway.