Yes, once it is up and going, the exhaust comes out underwater (makes reverse a bit inefficient on my engine however). During warming up, I do get some steam? through one of the water exhausts but this doesn't last long.
The air intake through the cowling is quite small, so I have allways assumed that all you needed was an aft pointing hole perhaps 1.5 to 2 x the size (allowing for the more convoluted flow path)
As I would expect sound to come out of this hole (in the box), It should perhaps be baffled or at least pointed aft so the sound waves are directed away from the cockpit.
I was thinking that you would not want to make a hole for the twist control (would let the sound out), so unless you have a Morse control, you would only use the 'box' for passages, and remove it in harbour, or possibly have a flap you could open for access.
Jim