"And why all the talk about replace the innards of his diff?" Just to be clear, you don't swap out any internal diff parts. You just swap out the whole diff with the HB diff and just change the steel spur with the Kyosho plastic one.
"What pinion gears are people using with the BL motors in converted 1/8th buggies?" Right here from MIke.
http://www.rc-monster.com/gears.php The Mod1 pinions. Most motors use 5mm shafts with the exception of the Lehner 1940 series.