That exhaust is stainless. That discoloration is normal for a bike that has seen water crossings and mud with a hot exhaust. By far the easiest thing is to clean it up with fine steel wool while washing, then leave it alone.
As for changing to a high exhaust, you will quickly find that the subframe and rear sidecovers won't work. That's all different on the high-pipe models and in order to get the exhaust through the 'normal' routing, you'd have to swap to a newer ('99-up) subframe, airbox, battery tray, etc.
Since the stock cans have the spark arrestors, I'd just leave it alone. It's a bit heavy but having one of probably 15 left in the country is worth something when people ask you "WTF kind of bike is that?"
Just my $0.02