According to Maximum Boost (the book), coating parts of the exhaust (even outside) improves the velocity of the exhaust gases, maximizing flow. As far as I remember, velocity is mostly influenced by the difference of temp between outside and inside of the pipe/exh/O2/etc. I don't have the book with me but I could elaborate on this later tonight.

Also, I guess that since your part (let's say O2 housing) is more insulated, the metal will chill down more slowly, preventing exessive stress on the part. I guess if it gets hot, then cold, then hot.. on and on, that's what make it crack (besides wall thickness for 1G exh many..)

Pierre M
91 Talon Tsi (paint job starting tomorrow !!)