Airhead Wrangler, your 2 main points make perfect sense to me. Leaking smoke out of the wiring is a definite no-no.
If you can, could you post some pics as you do the change over? Just so we see what all gets removed and how it looks once done.
I have replaced wiring on a few airheads, including both laying in a stock harness from a donor bike and making my own. Everything from just the sub-harnesses to everything frmo one end to the other.I found making my own was actually a very easy process, except for sourcing a few of the connectors. I think the hardest is that monstrosity that plugs into the guages. It is basically unobtainable, so I made up a bunch of connectors and then encased the whole works in some epoxy resin. Wasn't all that pretty, but worked.