That said, my airplane does have insulation on the cabin side of the firewall...it's a foil with some type of insulation beneath it...guess it'll be removed at some point. Is replacing said insulation on the engine side a hard requirement?
If it's a gray fiber, chances are it is Thermozite Plus, made from "Eco-fi™ polyester fiber...specifically, 100% post-consumer recycled plastic bottles. It was sold by a popular RV upholstery vendor back in the bad old days, because the manufacturer (Ozite at the time, IIRC) claimed it was a "firewall insulation". It's still available all over the net, including Amazon and Ebay, still claimed as ok for a firewall.
Absolutely the worst insulation I ever tested. Had to drag the burn rig away from my shop because it flared up so bad I thought it would melt the vinyl siding. If you have any of this stuff in your cabin, please remove it as soon as possible. Given its former popularity in the RV and Rocket community, there a pretty good chance it is what killed Vern Dallman. From the NTSB report, passenger's observation:
As the airplane turned wings level onto final, thick black smoke that smelled like burning fiberglass or plastic filled the cockpit. After the airplane came to rest, he observed flames around the pilot and felt high heat.
Is replacing said insulation on the engine side a hard requirement?
No, it is not, and it's an important point I'd like to stress. The danger here is generally self-inflicted. Builders place all kinds of bad choices in contact with the cabin side of the stainless steel firewall. Doing so can easily create a fire transfer mechanism...engine fire heats the stainless, stainless heats the flammable material on the cabin side, the result being fire in the cabin. Given an engine fire, a bare steel firewall will glow red, and it won't be comfortable, but it should be survivable.
Bottom line? Adopt “Primum non nocere”...first do no harm. Insulate the forward, engine side, or don't install anything at all.
.