This has been discussed on this forum many times in the past. If you need to insulate your tank or seat line the bottom of the tank or seat, don't wrap the pipe.
How many competition two stroke bikes do you see with heat wrapped exhausts, none. Two stroke pipes are tuned for harmonics. Meaning, the pipe works due to velocity created by sound waves that in turn help with the combustion process. The pipe is shaped so the sound actually bouces back and forwards before it goes out.
Check this site out it gives a good explanation of what I'm trying to say.
http://www.motorcycle.com/mo/mcnuts/em-pipes.html
And this ones for the more technically minded but has a good explanation of two stroke combustion theory.
http://www.hpt-sport.com/tunedpip.htm