timb, I think you're putting too much emphasis on the insulation. More is not better here.
Regarding the temperature, I can't say that this will be true on every model, but on my 2005, I get better stability with 50C than I do with 70C. Since it also uses less power, and heats my lab up less, that is what I'm going with.
Also, here is an update on my experiments with a PID controller. I tend to avoid anything "Arduino", because I find I can get better results using AtmelStudio and configuring the timers and what-not myself. For example, I was able to get several orders of magnitude better accuracy on an ultrasonic distance sensor by creating a very fast timer by keeping the interupt routine simple. On the Arduino, with the sloppy "millis()" functions and what-not, it simply wasn't working right.
However, for this project, I just wanted to try some experiments quickly without having to spend too much time coding and soldering, and for that the Arduino was perfect. I soldered up a small board with a power MOSFET, an NPN BJT to drive the gate (so that the MOSFET would be fully in saturation) and a few passive components to bias everything correctly and to provide a voltage divider with the thermistor. This was connected up to the Arduino such that it can PWM the MOSFET (heater) via one of its outputs and can read the thermistor value via one of the analog inputs. I also used a simple PID library that I found on the Arduino site. Other than the fact that the PID library uses floating point, it's not bad. It's really a pretty simple thing to do - the hard part is tuning the parameters.
The test set-up is a scrap tube from my broken heater with layers as follows: thermal epoxy (very thin), resistance wire, kapton tape, glass cloth tape, exhaust wrap, kapton tape. Inside the tube I have used some more of the thermal epoxy to bond a thermistor to the inside wall of the tube. This greatly lowers the latency between heat changes and works much better than a thermistor separated by an air and/or insulation gap. Also inside the tube, but separated by an air gap, is a thermocouple. The thermistor is used as the input of the control loop, but the thermocouple is used to measure what the actual temperature stability would be at the location where the voltage reference would sit.
So, I spent half of the day today playing around with PID parameter tuning. Lots of time can be spent on this, and I am sure with some more tuning, I could get something that settles out quicker, but what I have is pretty good. The thermistor voltage is steady within about 800uV at 421mV (0.2%) and the thermocouple voltage is steady within 1uV at 0.974mV (0.1%), which means temperature at the voltage reference would be stable to within 0.1%. At the set point I am using (50.2C), steady-state current draw with a 24VDC supply is around 100mA. It should be a little better once everything is sealed up.
So this is an order of magnitude better temperature regulation than my thermocouple + voltage comparator thermostat. At this point, the only open question I have is whether or not the PWM-ing of the heater current is going to add ripple to the output or impact the voltage reference stability. I think next weekend I'll go ahead and solder up a board and try it out in my 2005.