this is from the Thermo-Tec website:
"Wrapping headers maintains hotter exhaust gases that exit the system faster through decreased density. Increased exhaust scavenging is produced, along with lower intake temperatures."
i don't think that really matters on our motors.
like the other guys, i use header wrap to keep from burning my leg. i have the backwards motor set up with the exhaust in the rear, and my right leg is always about 2 inches from it. my pant leg flutters against the pipe, and without the wrap, it'll burn right through it.
i've heard the "trapping moisture/rust" theory before, but i don't really believe it, unless the bike sits in the rain or gets condensation from long term storage. seems to me the pipe gets hot enough to burn off any moisture. and once the paint burns off the stock pipe anyway (which takes a few days) it'll start to rust, wrap or no wrap.