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Rob,
that ovaled tube sounds ridiculously large to me. I agree, though, that you don't want to lose 3/4" ground clearance. 2 or 2.25" exhaust pipe is more than adequate. Actually, there may be some advantage from sticking with a 1.5 or going to 1.75" dia tubing, because you don't really need all that volume all the time (in between exhaust events, the space actually goes unused). Don't get me wrong, I think the headers are a good idea, but the collector may be a bit overkill. It'd have to be tested to see for sure.
At any rate, there may be a way to go with in-tunnel exhaust, but it'd be a VERY tight fit. Ground clearance definitely isn't something to sniff at.
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Agreed that the collector seems very large, but two thoughts:
1- the 3.5" diameter comes from a simple need to run the primary pipes in all horizontal instead of clustered. That's the diameter in which they will fit. Basically this would require the least fabrication.
2 - the area of the modified 3.5" pipe would be equivalent to 2.75" exhaust tubing. Still big but not quite as ridiculous as it first sounds.
I think I would neck down to 2" tubing once I cross under the axle sinc I wouldn't need my funky oval soution there, and go through a 2" glass pack.
Alternatively, I could neck everything down at the collector and run ovaled 2.5" pipe under the car and compress it to 1" in height, would still be close to 2" round pipe in area, though it would mean more fabrication.....
just thinking out loud, I might just decide to stick with the exhaust as I have it for the time being (stock manifold, 1.5" tubing to a 1.5"x18" glass pack)