Wow, can't believe I missed this setup! Very similar to mine, but I have custom made a manifold/burner, as both the MEN design and the Sanders design leave A LOT to be desired. See mine here:
http://wasteoilheaterforum.com/index.php?topic=409.msg2026;topicseen#msg2026I think you have a few more bux tied up in yours though, all said and done I think I'm about $120US into this project, mostly in flue pipe.
To answer a couple of questions from your OP:
It is very important for the entire body to be air tight, including the door. I had rust holes in the side of my body (hence why it was discontinued as a water heater), once these were plugged, it ensured all air was coming from the intake and therefore mixing with my fuel correctly and not causing a potential build-up of un-burnt gases in the body (which could theoretically explode. Theoretically... well, actually kinda in practice, but that's another story...). I am still working on getting the door sealed to my specs, the natural bow is kind of a pain...
The distance from the air intake to the burner is crucial!! I assume you are using a cone of some sort? If you pipe is too high/cone is too big, your air will spread in the body too much, basically negating the needed air volume as it passes around the outside of your burner and out your flue. Too close will obviously have the opposite effect and not burn efficiently, as you are only burning in the middle of your burner and pushing un-burnt gas out the flue. You will have to adjust this to meet your burners requirements, and I have had to fiddle with mine quite a bit before finding a happy place.
The longer the flue the better in draft systems like ours. More flue means more heat in the flue. More heat means more convection. More convection means more air volume. More air volume means higher fuel potential, but also means you burn more fuel! So again, you have to find the happy place. IMO, your length is fine.
Finally, To burn hotter, ditch that burner plate!
These heaters typically work on 1 or 2 different methods. The Sanders burner that you are using is simply burning a pool of oil (standard method 1). Obviously, it is never efficient to burn a pool of anything, you want to burn it as a gas not a liquid. Once you reach Full Operating Temperature, all your oil will be gas, but reaching FOT with an in-efficient system is very hard.
Method 2 usually includes some sort of "combustion chamber". As was mentioned above, the Mother Earth News (MEN) style of burner uses this concept. You use 2 plates with holes drilled (I used a small skillet and 6" dia. plate), spaced about 1.5" apart and closed on the sides. Oil drips on top plate, is gassed and past to the "combustion chamber". in this area is where you want your main fire to happen. This was the first style I had tried, as it made more sense to be more efficient. But I quickly learned it is not. Still very hard to reach FOT, sooted like mad the whole time, and after about an hour of running the top plate holes would become clogged and basically became a Sanders burner. Cleanup was a PITA, and it was required every time I wanted to use the stove.
I designed my new manifold using both principles and added the idea that the more surface area the oil hits, the more likely it is to get hot enough to gas. I now rarely clean it, have little to no soot (except on start-up of course), and have no problem getting the guy to put out as much heat as you could want.
I'm kinda in the same boat as you with my city. What they don't know wont hurt em. I try my best to keep smoke/soot down, again why I built a new manifold.
And yeah, if you do any of the above, move that baby away from the wall or put some sort metal/fire protection between it and the wall. I have my wall of my 100% wood construction shop lined with sheetmetal that I stood off from the wall with rubber feet. Wall stays nice and cool, the sheetmetal gets hot enough not to touch! Once its running like it should, that body will be Red Hot. I've had mine light up my shop well enough to see with the lights off type red hot.
Hope some of this info helps! Keep tweaking that guy and it will keep you nice and toasty!