Hi,
No, I don't think your prop shaft is too long, it should be fine. Also, I never rubber mount any of my gassers, and most people don't. No problem there either. A lot of people use an aluminum backplate mount, but I usually mount mine straight to the firewall with studs like you are doing.
That 700cc muffler volume you mentioned was in another thread about a 70cc engine. A rough rule of thumb is for the canister, or muffler chamber to be about 10 times the cylinder volume.
On a couple of mine, I have used a copper elbow and tubing to go back to a homemade canister (Pitts style) made out of thinwall steel tubing. One is on an Echo 23.6cc that turns over 9000 rpms, so it seems to work pretty good. Everyone says it sounds just like a real airplane in the air. If I can find one, I'll try to send you a picture of it later. Most all the manufactured ones you see have a hard right angle to them. I agree that this doesn't seem very good for flow, but they seem to work...
Your engine looks great. I hope you are enjoying the project. Converting the engine is the first part of the fun. The next part is getting to see the looks on people's faces when you fly the airplane, and then tell them where the engine came from!!
AV8TOR