Hey newbie, welcome to RCC. I haven't been here too long, but since I'm the first to reply to your first post, good to meet you. It's always good to talk to other diesel drivers.
I'm not sure what you mean by "foam" canister. I put a K&N on my 92' but had to peel off the extra gasket material on one end. The original didn't have any kind of gasket at that end. If you mean to put a foam cover over your canister, that would be good for driving around in a dusty environment. As I recall, you should have room - if yours is similar to mine. I think my canister from Summit was about $80.
What do you mean you want more intake flow? A K&N is a low restriction filter so it should flow slightly more air thru it. But it can also allow too much debris get tru if you don't keep the filter oiled. I've heard good and bad about K&Ns so be careful.
With a turbo diesel, there are other ways to increase the air flow. Your engine's turbo is mostly responsible for air flow. To gain more flow, you can reduce the bottle neck effect of the exaust. Unlike gas engines, diesels do better with as little backpressure in the exaust system as possible. A larger diameter down pipe will help it breathe better.
Without knowing which turbo you have, you can probably change the turbo housing to a more efficent model or you can go all out with a high performance turbo or install twins. With these you'll get the air flow you need and then some. With increased air flow, you can turn up the fuel to the engine for impressive power gains. (When I mean impressive, I mean make a 454 Chebby look like a small block, impressive)
I put an AFE mega cannon setup fro late model cummins on my 93 cummins, made a difference that you can feel, not like a gas engine when you add a high flow air filter and don't notice it at all. But I did have the banks stinger pack already, that could of contributed to how well it worked.
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