Would understand wiring round the back of the engine, maybe near the exhaust manifold, to have a bit of a hard time.....but all the other stuff just shouldn't get in that kind of state.
Is this a common problem on S1 of that year? Do wonder whether the cooling fans have been under-working for some time, since they do reduce under-bonnet temperatures when on. Might be worth dangling a digital thermometer in the engine compartment to see what sort of temperatures are developing there. I don't know what might be considered normal, though.*
Insulation just should not bake, whichever way you look at it......unless it was defective, in which case others will have had this too.
* Edit:
Have just googled and found this...
http://www.mvfri.org/Contracts/Final%20 ... es%201.pdf
which looks at underhood temperatures, under various conditions.
Includes a figure of 500degC for a 2 litre petrol engine, driven at steady 70mph. Climbs to 550C when engine is switched off.
This report by a Fire authority.
Would be interesting to compare these temperatures with the working temp spec for cable insulation.
If a general problem (the insulation, that is) others will have had it too.
Usual first problem with hot petrol engine compartments used to be vapour lock, caused by pumps and lines overheating, leading to poor re-starting or cutting out.
Wonder whether the presence (or not) of an engine under-mat would alter u/b temps?