keep in mind that one foot of heat wrap will go around your pipe about 2 and a half times. that's a coupla inches of covering.
there's a place local to me that sells the 1" black wrap for about 10 bucks for 15 feet. i use about 8-10 feet just to cover about 1' of pipe like this:
one easy way to keep the ends from fraying is krazy glue. squirt a line of it across where you wanna cut it, making sure it's saturated all the way through (doesn't take much) and then cut it before it dries with some old scissors.
as far as the pipe rusting goes, every pipe i've covered with it shows some surface rust when i've removed it, but never enough to actually hurt the pipe itself. the idea of it retaining moisture would hold true if you hardly ever ride your bike and you leave it outside in the rain, but, since the paint burns off these exhausts on your very first ride, the pipe will rust anyway. you'd probably have to leave your bike outside for 10 years before the rust did enough damage to corrode your pipe.
plus, these things get so freakin' hot, all the moisture would burn up from riding it.
never heard about heat retention harming the motors. i've never had a problem. i've also never noticed any HP increase, either. i just use the stuff because it's cheaper than new shoes, or a skin graft...